How Powerful Is That Boring 401(k)?

When we are young, saving for retirement is like thinking about buying a new winter coat on a hot July day. Both in their own time simply are not a priority.

So, here's some advice: forget about retirement. There is nothing about that distant day you need think about. Instead, let's talk about the one thing you probably will care about as much then as you do right now: making more money.

A second bit of advice, then...

Don't think of your 401(k) as a boring way of saving for retirement. Rather, consider it your best means, now and forever, for making more money. A 401(k) is, by far, the most powerful financial tool you have to make a fortune. This is true because a 401(k) gives you something no other investment alternative offers: a benevolent Uncle Sam.

Here's the deal. Your 401(k) allows you to bank investment gains without paying any taxes. In other words, every dime you make is yours to keep. You are well-advised to put this power to use because this dramatically improves your odds of making more money, now and forever.

There's a reason why Uncle Sam does not tax your 401(k) investment profits. This is to encourage you to actively manage your investment risk. Then, Uncle Sam cannot be held to account when you fail to bank your profits. Your distaste for paying taxes cannot be an impediment to locking in your gains because, in fact, there are no taxes to pay.

You can be sure, too, taking profits sometimes is entirely appropriate — indeed, the smartest thing you can do. Bank your gains (tax-free!) — they're yours. The secret to making more money with your 401(k) is investing aggressively, and taking profits when your risk of loss becomes elevated. It's a no-brainer, and no other investment avenue gives you this power. Tax-free profits truly are a gift making your 401(k) a gold mine.

Now, here's the kicker. Added money you can make today taking profits, tax-free, can become all the more money you make tomorrow when your risk of loss investing aggressively is reduced once again. So, a 401(k) also offers you the power of compound interest on steroids! Profits you bank today become larger sums you can aggressively invest tomorrow, which then puts you in line to earn greater profits still. It's one big virtuous circle, and you should use it.

That is if you want to safely make more money investing using the most powerful weapon at your disposal: your "boring" 401(k).

The Life and Death of Long-Term Investing

Take a look at this chart of the S&P 500. It might give you valuable perspective. Despite dangerous near-term prospects, I believe you still can make a ton of money investing in the stock market.

Start with the years 1971-1972...


See how the S&P was rising then? Well, right now, it's like late '71 or mid '72. So, there's more upside to go here in '07.

In fact, you might be surprised by how much! You might even start thinking I am an idiot, too, because I am always expressing such caution...

But then again... look what's dead ahead: 1973-1974. This was a disaster. Half of the S&P's value ... lost.

Look how long it took before this loss was fully recovered, too. Plus, it wasn't until 1982 that things really got back on track. Almost ten years ... going nowhere!

Let me remind you (as I remind myself):

We only live so long.

Now, imagine...

What if sometime during the next five years the S&P 500 falls back to its 1994 levels, below 500?

Do you doubt this possibility? There are plenty of reasons to suppose this could happen!

Imagine all the weeping and gnashing of teeth ... with much talk about impending doom accompanying financial misery.

But look at this longer view...


The S&P 500 would remain in a rising, long-term trend even if, tomorrow, it collapsed to 475!

Do you see this? (475 is where the S&P 500 bottomed in 1994.)

Now imagine... if this happens, many years probably will pass before the S&P 500's present level is exceeded.

This is the reason why those who promote long-term investing stand as potentially dangerous advisers. They typically fail to mention that, sometimes, the "long-term" does not match up well with one's time on earth.

Is it premature to advise your caution here, then?

Maybe so.

However, in the grand scheme of things — given how far the stock market has risen and where it could go from here — your caution might prove rather timely.

I only hope to impress you with two simple facts...

1. You don't need to be a Chicken Little doom-and-gloomer to concern yourself with bad things that happen quite naturally in the stock market.
2. "Better Safe Than Sorry" is an investment mantra whose profit potential is very much worth your consideration, now and forever.
   

You simply must appreciate the difference between realistic dreams and outright fantasy if you wish to turn your 401(k) into a bulging treasure chest. Truly, you alone hold the key.

Small 401(k) Loan Finances a Big Opportunity

As I hinted the other day, you can use your 401(k) to finance a low-risk opportunity venturing to make a fortune when the time is right. Your aim is to radically improve your life in the here-and-now risking very little money.

Starting with just $500 (and risking no more than this) you automatically limit your loss. Look, no matter who you are, $500 these days is nothing (relatively speaking). So, then, since $500 is such a small amount, this, by default, minimizes your risk. That's what makes the investment opportunity I will be discussing here foremost a "low-risk" proposition.

As you know, the first thing you should consider before making any investment — the first thing you really must wrap your brain around — is how much do you risk losing if your investment sours. So, here, you know your risk is $500.

Where you will venture this risk is in a place where relatively few people go. Don't let this discourage you, though. The marketplace where $500 can be quickly multiplied into tens of thousands of dollars is all very legal and above board. In fact, over the past thirty years regulated exchanges where options trade have increasingly moved into the mainstream of investing.

Before I go any further, let me just say stock index options — securities I have extensive experience trading — can have a rightful place in any safety-minded investor's ammunition belt. Surely, though, the prospect of speculating using stock index options more likely will be appropriate for those who are empowered by my simple 401(k) investment strategy. These folks realize that, their desire to safely secure superior investment returns requires gaining some useful ability to better distinguish risk and opportunity investing their 401(k) in stocks.

Truth be told, it is possible to apply this power of discernment even to those relatively infrequent instances when volatility in the stock market is likely to explode for an extended period. These are moments when risk of loss trading stock index options is markedly lower than is normally the case. More provocatively, though, this is when your opportunity to turn $500 into an extraordinary 5- or 6-figure score astronomically increases.

Speculating with stock index options is most appropriate when there's heightened volatility in the stock market. Now as history would have it, rising volatility typically is associated with periods when stocks are falling. In such times (were you employing my simple, two-step, 401(k) investment strategy) your nest egg already would be parked in a safe money market fund, well-protected from the ravages of a declining stock market, yet earning squat just the same.

So, the question is why not borrow $500 from your 401(k) to finance a stock index options play?

When you pay back a 401(k) loan (principal plus interest) you, in fact, pay yourself the interest. That's how a 401(k) loan works. Now, chances are this interest you are paying yourself is going to be greater than what you are earning in your 401(k)'s money market fund. So, here is a case when borrowing from your 401(k) can even make good financial sense!

Realistically, though, were this to be true, then not only must you not lose your 401(k) loan's principal ($500), you also must earn more than you are paying [yourself] in interest. Your odds of achieving this objective can be significantly improved when you trade stock index options only when stock market volatility is elevated. Insist on waiting for this. Sure, your opportunity to make a quick killing will be most ripe then. But more importantly, your ability to go for the gold without risking a dime of your own money will be vastly improved when you wait for increased volatility in the stock market.

Patience truly is a virtue here because, even though you are aiming to capture huge profits trading stock index options, your first priority, as always, is safety. In fact, what starts as a low-risk proposition should initially venture to have you quickly banking a profit, so you can take your $500 stake off the table and play with "the house's money" thereafter (making your risk zero from there on out).

Now, you can believe opportunities promising incredible gains (in a mere matter of days or weeks!) speculating with stock index options do not appear even every year. Yet in historic times like these, occasions offering extraordinary opportunities to earn a fortune risking very little money are sure to appear. There should be several instances over the next five years when volatility in the stock market raises opportunity to multiply a measly $500 into tens of thousands of dollars, if not much, much more.

Truly, I have little desire to hype possibilities here. I much prefer being realistic. Still, reality has it that, moments of heightened volatility in the stock market are as natural as tornadoes in Kansas, and all the more likely over the next five years.

So, stay on guard, because there are extraordinary risks threatening to decimate your 401(k). Have no doubt, though, you can easily sidestep any danger. Not only that, but in fast approaching times of trouble you can turn your life around in a big, big way risking so very little.

Are you IN?

401(k) Investing and the Essence of Time

We both know life is short. That is why, when it comes to growing a hefty retirement nest egg, time is of the essence.

That's right, time is of the essence. Timing, on the other hand, is but a secondary consideration. Truly, you only have so much time to build a hefty retirement nest egg, because you only live so long.

Now, chances are you probably cannot set aside upwards of 14% of your salary into your 401(k), much as the glorified sales hacks on Wall Street advise. (I know! Who can afford it?) So, why not learn how to use your 401(k) as a launching pad for attracting massive wealth in the here-and-now, saving just 1% of your pay.

In upcoming posts I will show you how to leverage your 401(k) savings, so you might:

• score big and pay off your mortgage
• liquidate other debts you would be better off without
  
• launch yourself to an early retirement.

This much I will tell you right now: Patience is a virtue.

I hope you agree because, now, you should let this fact sink in...

You can ill-afford taking serious financial hits on the chin.

So, recognize how time is of the essence.

Think back to Y2K. Remember technology's promise? How about, "NASDAQ: The Stock Market for the Next 100 Years?" Did even 100 days go by before the luster came off the shiny, new NASDAQ MarketSite at 43rd and Broadway, in the heart of Times Square? Indeed, high tech's broken promise drove many a 401(k) portfolio six feet under ... long before the Twin Towers fell.

How much better off would you be, right now, if only you had been forewarned? You see, the time that's of the essence appreciates how human emotion — greed and fear — inspires eternal wisdom in real, live shows of financial punishment (for the greedy) and reward (for those who fear).

Many months have passed since I warned about "structured finance." Yet if you detected a note of urgency then, you simply were confusing "market timing" with how "time is of the essence." Today, what's called "investing" is largely driven toward complacency and greed, oblivious to a profound vulnerability built into the global financial system over recent decades via what history books one day probably will call a "Ponzi scheme."

Tragically, the icing on this cake is made of belief the Federal Reserve can somehow save the day. Truth is, the Fed gives hookers a good name, because when compared to Wall Street's highly-leveraged, securities-based credit machine, the Fed is like a candle in the wind. Their size is dwarfed by Wall Street's so-called "shadow banking system."

Consider yourself warned, then.

Also realize your 401(k) is a wellspring from which you can finance low-risk, high-reward speculations when the lug nuts come off Wall Street. These are the times when — your 401(k) already sheltered in a safe money market fund (Plan B) out of fear your stock investments (Plan A) are at heightened risk of suffering wealth-killing losses — you could borrow your way to prosperity. You see, there is an exception to every rule!

Indeed, with a 401(k) you can unlock the simple secret to saving just 1% of your salary and attracting life-changing wealth. Of course, this is in part made possible by the very fact we are living in a time of heightened financial vulnerability. Excessive leverage always breeds volatility. Always has, always will. Such is the nature of greed.

So, in upcoming posts I will show you how your financial abundance can be secured in the face of this extraordinary danger. Make no mistake: risks of financial shocks are building and soon enough could explode onto the scene, making for a unique opportunity to rapidly turn a small stake into a tidy fortune.

Now truly is a time when patience is a virtue. The opportunity to set your life financially straight risking little finds the present moment elevating your odds of success. Most critical in exercising patience, though, simply is knowing what you are waiting for. This, of course, is the moment when volatility is likely to leap. Then, you strike, risking little, knowing there's great promise for quickly amassing incredible wealth you can use, either to plug some holes or make some hay. Foremost, though, you can gain the financial foundation on which your early retirement becomes a practical possibility.

If your power to save in a 401(k) is little to non-existent, then this is real hope.