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What Should I Do With My 401(k)?

After losing huge amounts of retirement money in the stock market, many people are asking: Should I stop contributing to my 401(k)? Should I take money out of my 401(k) and invest it in something else, despite the tax penalties for doing so?

The problem with a 401(k) is that you put up 100% of the capital, assume 100% of the risk, and you only get 20% of the profits. The other 80% of the profit goes to fees and commissions. The key question is: Do you have the financial education needed to find an investment that will give you a better return?

There are certainly better investments than 401(k)s. But for people who have little financial education a 401(k) may be the best investment. I do not advise people to get out of their 401(k) if they don’t have the financial education needed to find and wisely manage a good investment.

Just like you wouldn’t want to give a teenager a car before they learn to drive, you don’t want to purchase an investment before you’ve learned to control the risk. Every investment carries some risk, but as your education about that investment increases, your risk decreases.

With a 401(k) you are turning your money over to someone else, which means they get most of the control... and most of the profits. You can do a better job with your money than anyone else. First, however, you need to arm yourself with some financial education.

So if you want to get out of your 401(k), set aside some time now to increase your financial education a little bit every day. That is one investment that is sure to bring you good returns!