As far as the growing economy is concerned I am barely making any gains in my IRA and 401K accounts and I don’t know how much anyone else around here. The stock market doing great typically does not trickle down to the common man. A wise man once told me, the only gains you make by investing in IRA is the tax return you get but otherwise the people who gain from trading are the brokers.
That's odd. But if you have few gains this year, I would say that it's purely a reflection of what you're invested in. Unless you're in something that has absolutely killer fees, it has nothing to do with how IRAs or 401Ks are structured. Are you invested in equity mutual funds, stocks, bonds, CDs or a mix of some sort?
I haven't had the time to review the final legislation and I don't have an unbiased analysis at hand yet. But with all due respect (and I mean that), I do have to point out the error in the underlined statement above. While not wanting to be insulting to the man who told you that, I can say that his wisdom apparently does not extend to the investment space. An IRA, or Individual Retirement Account, offers individual investors the opportunity to invest in everything from stocks to mutual funds to ETFs (exchange traded funds... sort of like mutual funds with real time pricing and trading components) to commodities, real estate, real estate investment trusts, insurance products, bonds, CDs, etc. And I also must point out that there is a HUGE difference between trading and investing - they're totally different animals. Unless you are an experienced investor (and even then), I would caution most people not to attempt to trade the positions in their accounts. Especially in an IRA or 401k, history shows that most people are better off employing a buy & hold strategy. Even pros aren't that good at calling tops or bottoms in the equity or debt markets.
Here's a simple illustration of what I'm talking about. Assuming a person is under age 50 (income limitations aside), he can place $5500 a year in an Traditional IRA. Yes, that reduces the person's taxable income for the year. But over time, it also allows tax deferred growth. Let's say that a person chooses a low expense fee, zero commission ETF bought through a Vanguard IRA as his sole lifetime investment. Let's look at what a total stock market index ETF (representing the overall U.S. equity market) has done. Vanguard Total Stock Market Index Fund (symbol VTI) is up approximately 20% year to date, which, by design, closely matches the overall market's gains. It's up approximately 85% over a five year period. It has a paltry .04% expense ratio and it pays a 1.6% dividend. I used a Vanguard fund simply because Vanguard is the industry leader in low expense ratio investing. But Schwab, Fidelity and many others offer the exact same type of broad index and sector funds. They're nothing special or exotic. So if you put $1000 into VTI at the beginning of this year, you'd have roughly $1200 right now. The key to investing is not scoring big gains
every year, it's what you make,
on average,
over time.
U.S. stocks have historically appreciated at an average annual rate of about 8 to 9 percent. Combining what the average wage earner can put into an IRA and a 401k (
including company match), let's assume on a $50,000/yr salary the employee has 15% going into retirement accounts. Let's further assume the employee is 30 years old when he starts investing (rather late in life, but still...). The employee never gets a raise and never rises above the 15%=$7500/yr.
(let's say $1500 of that is the company match/free money)=$625/month total contribution.
So here's the bottom line:
in 31 years (at age 61), this employee will have roughly $1 million in his retirement account(s).
It's just math and the power of compounded annual returns - there's no trickery. But people get lied to by politicians and by people who don't know what they're talking about. So they give up and do nothing. And that's a real shame and a real problem for our nation as people age without saving and investing. Don't believe me. Do the math for yourselves and decide what's right for you. But realize that your reality is largely based on your own decisions - not huckster politicians wearing red or blue team jerseys. And just know that
you can avoid reality, but you cannot avoid the consequences of avoiding reality.
