Why 401k Is Bad: Here’s a Better Investment Strategy | Dr. David Phelps

Updated : Nov 06, 2019 in Articles

Why 401k Is Bad: Here’s a Better Investment Strategy | Dr. David Phelps

– Hey, it’s David from Freedom Founders. When I tell doctors,
dentists, chiropractors, veterinarians, MDs, that
I think the last thing they should be doing is
investing their money in a 401k or defined benefit plan,
or cash balance plan. All those things that are
all about tax deferral, they look at me with glazed eyes. It’s like – how can you say that? I mean, that’s the first
thing that we’re told to do. – By who? Yeah, the financial markets, Wall Street. They want you to do that. They want you to tie your money
up, your hard-earned money, and tie it up in their
constructs, their frameworks where you can’t get to
it until you’re 59 1/2. See, once you put that money in there and get that tax deduction
and then a tax deferral, yeah, you’ve locked your money up. You’ve put it in prison,
that’s what I call it. You put it in prison
now until you’re 59 1/2. Try to take it out before then, yeah, you’re gonna pay a
penalty and the taxes on that. Not a good thing. They’ve got your money
tied up for years and years and years, and that’s
exactly where they want you. So, David, what about the tax deferral? What about the power of compounding? Yeah, I get it, absolutely. Not taking away from that at all. If you can put your money
to work and defer the taxes, or better yet, go tax-free,
I’m all about that. But I don’t wanna do it in a construct where for most people, because
you have office employees, you can’t manage that money. You take that 401k, defined benefit plan, cash balance plan, and it’s gotta be put with somebody else that’s
gonna manage it for you, a third-party, right, a
fiduciary so they call it. Well, where are they gonna
invest it or manage it? On Wall Street. Wall Street’s not the place to go. Well, why not, David? What do financial
advisors tell people today that when they’re getting
ready to quote retire, what are they supposed
to do with their money that’s been in the stock
market all these years? to go up and down, up and down. What do they tell them? Get your money out of the market and get it into conservative investments. Well, why would they tell you that? Because it’s volatile, because they don’t have a clue when it’s gonna hit bottom again and when you’ve lost
the ability to make up for lost time in active income. When you’ve shut that income stream down, you’ve got no second chances. So, they don’t want you to. They want you to try
to stack your money up and play the stock market
casino game for 30, 40 years and then all of a sudden
take whatever you’ve built up and now take it and put it
in CDs or T-bills or bonds and get paltry returns. Is that really the way you wanna do it? Look, tax deferral, again, is great, but there’s so many ways
to get tax preferences, tax mitigation and still
have control of your money without putting it in those constructs. That’s why I say don’t do it. Now, if that’s all you’re gonna do, if you’re doing nothing else, and you don’t have any
motivation to orchestrate or direct your own financial
future, then yeah, go do it. Go put your money and at least have some
discipline to do something. But if you have the
desire to be different, to actually live a life of freedom, to get ahead of the game, the whole taxation, the
whole inflation game, you gotta your money working for you, and you can’t do that on Wall Street. It’s a casino. It’s gambling. Don’t go there. That’s why I tell people
don’t do the 401k. But again, I’m not speaking
to the majority am I? Hopefully, I’m speaking to you. If you’re not that person,
then put your money there. Keep your fingers crossed. Hope for the best. Always remember to stay
focused on your freedom. This is David, I’ll see you next time.


  • That is a somewhat silly argument against a 401K. Your point is really just against investing in the stock market for any reason, but you never said what they should be doing. Real estate, limited partnerships?? For high income earners like Dr.s and lawyers that might be valid to invest in some hard assets, but even they are often swindled as they will hire someone to do it for them because they do not have the time, nor the expertise. The market has a long track record, so for long term investing, its pretty good, and if you stay with mutual funds, its very easy and you need little adviser help to do it yourself.

  • Those people you mentioned are all generally self employed. What about people who are employed by companies that offer a generous match? Would you suggest ignoring that free money?

  • Find more great advice towards your financial freedom in this playlist I created for you! https://www.youtube.com/watch?v=hWM5cekTj-I&list=PL6UzhmjhYcomKRn4mjDa6EtwvTrnrAIqN

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