I’m needing some financial advice.?

Question

I have managed to save up quite a bit of money in a Fidelity 401K plan. I can make a loan to myself from this account to myself and pay it back at the interest rate and amount I want. Would it be better to keep it where it is or would it be better to draw some of it out and buy property? I’m a little worried about inflation and would feel better if I had my money where I could see it.
Thanks
This is really bothering me.

Thanks Guys,
You have given me a lot of good info. As vegis and dumb American advise I guess I need to keep my hands off my 401. I didn’t think about the penalties I would be hit with if I quit my job. Thanks yeeooow I’m picking your advise for best answer. When the foreclosures start maybe I’ll sell my car and buy something :-)
Les

Answer 1

if you leave your job, the loan will be immediately due or you will be stuck with taxes and penalties if you can't pay it all back. Also, time is the magic behind any investment, when you take a loan on your 401k, time stops for that investment.

Second, in most markets, housing has topped out. If you are looking for property to move into and live for some time, that's fine (though I still wouldn't use 401k money to finance it) , but if you're looking for a quick investment return, I'm afraid that game is over in most areas.

new construction is down; existing homes are on the market longer and coming down in price and interest rates are going up. A lot depends on where you are buying but in general, the big real estate game is topped. foreclosure rates are already up quite a bit.
http://www.realtytrac.com/news/press/pressRelease.asp?PressReleaseID=87

In General:
you want to diversify your investments not consolidate them. by takeing money out of the 401k and putting it in property, you've just transfered one investment for an other. If it's a all possible, start saving now for a property. In my opinion, as interest rates rise I think we will have a rash of forclosures. prices should drop a bit unless unemployment goes up... then they will collapse.

consider this:
if you are 35 now and you manage to save 1 million dollars by the time you reach 67. you will be able to live on about $60,000/year in today's dollars. But When you are 67, that 60,000/year will only have the buying power of about $22,638/year (this number is even lower if you are younger), but that's when you start drawing money you may live another 25 years and inflation will continue to erode that buying power.

so you need to ask. what will happen with social security,
will you have a million dollars by the time you are ready to retire

a million dollars isn't what is used to be.....

Good Luck

Answer 2

To start with, you can't pick your interest rate. That will be determined by the plan administrator. Also, there is a fixed term on this loan-you can't take out a 30 year loan against your 401(k). Anyway, I do see your logic on this. You can pay yourself back while still paying yourself interest on the loan. Bear in mind, though, that the return on your outside investment needs to be higher than the rate of return within your 401(k).
As far as property for an investment, I'm assuming that you mean either unimproved acreage or some sort of building (home, apartment building, whatever). Although real estate is generally a good investment, it's not without its risks. To start with, it's not particularly liquid, meaning that you can't decide on Tuesday that you want your money out by Friday. Also, the value of real estate doesn't tend to appreciate all that quickly, particularly if it's an empty lot. If you're buying rental property, then you need to deal with the hassles of being a landlord. I think if this is something you really want to do, talk to some people you know who currently are doing what you want to do. They are the best people to let you know what the potential downside is of a property investment.

Answer 3

Buying property is a good investment as long as the loan can be paid back quickly or if the property can generate enough cash to pay the loan off itself. If you borrow from your 401k and buy a rental house and rent it out for more than what you payments, insurance and taxes are then its a good deal because you are basically paying yourself interest and increasing your net assets. If the property cannot pay the interest or other expenses then its not a very good deal. You also have to ask can the property also pay for any maintenance costs it might incur? You also have to ask yourself can you get a better rate of return from your 401 than you can by paying yourself interest? Are you the type of person who would have no problems dealing with renters and the problems that will entail? Are you skilled enough to do your own maintenance? The key to doing well in property is buying at a low price. Right now there is a lot of inflation in property values already is this really the best time to be buying in your local? Your best bet would be to diversify your 401k, use other sources for investment properties and look at your own personality to know if you are the right person to be investing in property.

Answer 4

If I understand your question correctly, you are looking to take a 401k loan to purchase real estate. If this is correct there are a few follow up questions that I have for you. First, is the property going to be a primary residence or something for investment potential? This is the biggest factor for deciding. Second, are you looking to have the lowest monthly mortgage payment or are you looking for the best move financially? There is a HUGE difference in each of those. If you are looking to have the lowest mortgage payment WITH the lowest risk, then by all means, take out the 401k loan and apply it for a down payment. Then however, you are paying interest on your own money. To me, that sucks! If you are looking for the best move financially, then finance the entire purchase price on an interest only loan and invest the difference that you would be spending in principal payments. You could end up thousands of dollars ahead in the long run! I hope that this helps.

Answer 5

Instead of loaning against the Fidelity 401-K why not self-direct your retirement IRA with a company like Equity Trust in Ohio. Then you can decide what to invest in. It could be real estate or you can invest in more liquid assets like real estate notes which deeds or trust or mortgages are attached to the real property. Investors will pay you 8% and higher to make money secured for short periods of time like 1 or 2 years. You are getting a higher rate than inflation and a bank cd plus it is secured. I have seen this done and borrow money from investors showing them how to get better guaranteed rates of returns. I hope this works. Contact me at yahoo if you want a better example.

Good Luck

Answer 6

Generally speaking, real estate does provide a hedge against inflation. This time around, however, real estate prices are inflated while home ownership is at its historic high and interest rates are near historic lows. So I wouldn't expect the general rule to work too well this time.

I'd say, leave the money in the 401(k), but shift some of it into international funds. If you are worried about inflation, you definitely DON'T want your money where you can see it; you want it out of the country.

Answer 7

I think the first advice you get should be watch out for those predatory financial advisers!

Recently, I came across a good book that really cautions and gives guidelines on picking a financial adviser. It is "Wealth" by Stuart E. Lucas.

I think when you put a question like yours out to such a broad audience you are going to get some predatory people responding. You may get some good answers,but be cautious about who you listen to here.

Answer 8

Keep the 401k, out of site out of mind. Save up to invest in property or sell your car for a cheaper model and use that money to invest. Cars are worthless.

Answer 9

spend more than what u earn, and get a loan to cover the rest!

Answer 10

forget that that "touchy-feely" stuff. Absolutely wrong.