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When the Dow broke 21,000 last week, the financial news networks erupted in celebration – so much so you'd think every investor and trader just hit the stock market lottery.
While it's true that the Dow's second historical achievement this year certainly deserved some applause, the boisterous fanfare we were subjected to on TV was more than overkill.
In fact, there's one thing the pundits forgot to tell you in all their excitement…
And it's big.
Dow 21,000 May Not Fatten Your 401(k) as Much as You'd Like
Although Dow 21,000 has lost a bit of its luster over the past week, you can still count on people being happy about "all the money" they'll make in their retirement accounts.
But they shouldn't hold their breaths – and neither should you.
The bottom line is… 401(k) accounts aren't actually seeing the same positive returns as the overall markets. Now I'm not saying that the average account balance is declining while the markets are climbing. To the contrary, Fidelity reports the balances of American 401(k)s have reached historic highs, with the average high at $92,500 (up from an average high of $91,300 in 2014).
However, even though the Trump rally hasn't really stopped since Election Day, it doesn't necessarily mean that your returns will perform as well as (or outperform) the markets – including Dow 21,000. For one thing, a majority of Americans are sitting out of the stock market right now. In fact, 54% of Americans will not actually benefit from the Dow's latest accomplishment. Part of this is due to the fear that a huge correction is coming, and part of this is because people just don't have the same discretionary money they used to have to invest. Of those who are participating in the markets right now, their accounts typically aren't 100% invested in equities. This isn't bad by any means, as it's smarter and safer to diversify your portfolio. But also keep in mind that all of the attention being given to the U.S. markets excludes any performance of foreign markets, which could likely be a part of your holdings.
The other factor to keep in mind are the fees associated with 401(k)s that can hinder the return on your money. Defined contribution plans – like 401(k)s – can carry significantly higher fees than other types of investment accounts. For example, the typical 401(k) plan charges roughly 1% of the assets it manages, which can come out to hundreds of thousands over time. In fact, the Center for American Progress completed a study back in 2015 that revealed the high fees in many retirement accounts are forcing many Americans to work longer than necessary or planned. This is because employers tend to structure their plan offerings in a manner that saves them money by passing costs on to employees.
That said, I'm not suggesting that you abandon your 401(k) or other retirement account for something else. I'm an options trader and coach – not a registered investment advisor or financial advisor. This article isn't a platform for me to tell you to abandon your 401(k) for something else. I believe that retirement accounts are an important part of saving… but there is a disconnect between Dow 21,000 and what it actually means for your retirement account.
So instead of waiting for the markets to hand you the types of profits you want, evaluate your financial goals and work with your financial professionals to determine what, if any, changes you might need to make. Other points to consider are the percentage you're contributing every year and your overall investment allocation across all accounts you have.
And remember, buying and holding isn't the only way to reach your retirement dreams…
There's a much quicker, safer, and easier way you can do that. And I've developed a system that could double your money in only four days or less – each and every week. In fact, my members have already gotten the chance to bank 532.6% total gains since January – including a cumulative 221.37% gain in just two days. To find out how you can get in on the next opportunity, click here.
To your continued success,
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.