Major milestone reached: over 200K invested in my 401K

Someone on the ChooseFI Facebook group pointed out that the above balance is an 8 digit palindrome made with only 2 different numbers!

I just hit a new milestone in my 401K: my investments have surpassed 200K in value!  This bull market has really helped to boost our investment returns.  While 200K isn’t enough to retire on*, it’s a great milestone to reach and keeps us encouraged to stay the course with our investments.  My last big 401K milestone was surpassing 100K in value in September 2015.  Second to our real estate portfolio, my 401K is our best performing account.

A 401K is an employer sponsored salary deferral account that allows you to contribute part of your income towards your retirement.  These contributions come out of your paycheck pre-tax and can be invested into a portfolio of mutual funds.  Contributions into your 401K lower your adjusted gross income, which can lower your tax liability.  Currently you can contribute a maximum of $18,000 a year into your 401K (if you are under age 50).  Starting next year in 2018, you can contribute a maximum of $18,500.  For more information regarding 401Ks, read this Investopedia article.

I started contributing into my 401K in October 2011, a little over 6 years ago.  I started off with a 3% contribution from my paycheck.  Then I kept slowly ramping up my contributions, just 1% every month or two.  I increased the contribution amount and then made our lifestyle adjust to the decreased take home paycheck.  I didn’t start maxing out my 401K until June 2014, when the maximum was $17,500 per year.

It’s amazing how much money you can accumulate by consistently investing into a bull market.  I’ve been a part of a profit sharing program with my company for the last 4 years, and distributions go into our 401Ks.  I actually prefer that these distributions go into my 401K, and not my bank account.  This helps me hide my bonus money from myself so I’m not tempted to spend it all.  Also having a company match provides an instant return on your money.  Saying no to the 401K match is like saying no to a free raise.  Don’t leave free money on the table.  My company offers a 3% match, while other companies may offer more.  Company matching contributions do not count towards the maximum individual contribution amount.    

People (and the media) have told me countless times to get out of the stock market for various reasons (double dip recession, European debt crisis, Grexit, US government shutdown, terrorist attacks, oil crisis, Brexit, a new president, etc). The entire time I just kept my contributions on autopilot, investing whether the market was up or down and just ignoring the noise.  Consistent contributions into my 401K allow me to dollar cost average into the stock market.  When the market is down, I purchase extra shares and when the market is up, I purchase less shares.  This takes the emotion out of investing.  My taxable and IRA accounts didn’t perform as well because I was always over thinking my investments: waiting for the market to pull back before buying more shares, exchanging stocks for bonds when the market reached a new high, or only making new purchases on a down market trading day.

Automatic investing simplifies your investing so you don’t overthink your investment timing.  Fidelity investments did a study of the portfolios that performed the best from 2003 to 2013.  They found that the best performing accounts were from investors who were dead!  This is because these dead investors didn’t try to dance in and out of the market.  The investors who tried to time the market ended up performing far worse than those that just stayed the course.   

Right now I am 90% invested in 3 funds designed to mimic VTSAX, the Vanguard Total Stock Market (71% S&P Fund, 6% Vanguard Mid Cap, 13% Vanguard Small Cap Growth) as well as 10% into a Vanguard Health Care index.  These are simple index funds and there is no magic to our asset allocation. 

This last year has been great with a 26.2% rate of return.  I don’t expect that to continue going forward.  But I do expect to continue maxing out the 401K.  This all goes towards funding our financial freedom and retirement. 

Are you maxing out your 401K contributions?  If not, it’s time to increase your contribution amount - even a 1% increase will make a difference long term.  

*Someone from the ChooseFI Facebook Group pointed out this link where you can read about 8 countries where 200K is enough to last 30 years!