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An Indexed 401K Will Crush Your Stock Portfolio

Jul. 16, 2017 8:13 AM ETCAT, DIA, GS, JPM, UNH, UTX, SPY120 Comments


  • The importance of tax-efficiency when investing in stocks and funds is often misunderstood by individual investors.
  • A tax-advantaged index fund, while "boring" to many, is an almost unbeatable investment by any stock or fund held in a taxable account.
  • The statements above are illustrated below so investors can visualize the tremendous advantage of tax efficiency.

I don't seek to give financial advice to people in my life. However, I am asked investment-related questions routinely by friends, family, and colleagues, often who are much older than me. It's amusing to me. I'm very buttoned-down, organized and boring for my age. I could pass as someone ten years older than I am (I turn 31 next week), but I look like I'm in my mid-20's (I have a 'baby-face'). The irony.

I rarely answer their questions. I'm not qualified to manage their finances. I'm not a stock-picker. I don't scour the web searching for the next hot trend or emerging market. Even if I thought I were smart enough to do it, it just doesn't interest me. Instead, I give them three basic truths:

  1. Choose stable companies that have been around for decades and that you think will still be around after you've passed. Make sure they pay a dividend, have been paying a dividend for many years and have routinely raised their dividend. If you don't want to choose individual companies, choose a fund with low fees comprised of these types of companies.
  2. Auto-invest. People are subject to emotions and laziness - set your portfolio up so it auto-debits in some way and buys stock for you every month or every pay cycle.
  3. Max out all your tax-advantaged accounts first before you even think of opening a taxable brokerage account.

Truth #3 may be the most-ignored truth.

Investor Returns Fail Due To Strategy

I don't care how good of a stock-picker you are. If you don't have a strategy as to how to exploit market gains, you will fail.

This article was written by

Anthony is a private investor and Owner/Author of the blog The Struggling Millennial, which is geared toward today's generation of young adults and their struggle to achieve financial independence. Anthony prides himself on being self-taught and self-made, and regularly encourages individuals to take control of their own lives through the use of simple, straight-forward investment principles that the average person can understand and actively use to evaluate the financial health and performance of their investments. Anthony is an electrical engineer who works full-time managing multi-million dollar projects for one of the larger construction firms in the Philadelphia area. Anthony believes the most difficult part of our individual journeys toward success and freedom is simply building the courage to get started, but once started, if we maintain our persistence, the sky is the limit.

Analyst’s Disclosure: I am/we are long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

All information found herein, including any ideas, opinions, views, predictions, commentaries, forecasts, suggestions or stock picks, expressed or implied, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. I am not a licensed investment adviser.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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