401K vs. CD

ten_handicap · 10-01-2008, 11:14 AM

Good afternoon everyone!

I'm hoping some of you might be able shed some lights on my dilemma.
Due to obvious reason, I'm considering about taking part of my 401k to invest in CD account. My company allows me to borrow money from my own 401K account as a personal loan. It's not considered as cashing out 401K so there's no penalty however I will be required to make payments with low interest which comes out directly from my payroll before tax. The payments that I make goes right back in to my 401K account including the interest… sorta adding more money into my 401K if you ask me. What do you guys think of this move?

Thanks in advance!

kav122 · 10-01-2008, 11:55 AM

I don't think that I would ever "borrow" from my 401K. If you want to do that, why don't you suspend the contributions and put them in a CD? Then you don't have any risk involved. Remember, if you were to lose your job, you would have to pay all of that money back to your 401k in a short period of time, so in addition to paying interest on your own money, factor in that risk too!

Xin Lu · 10-01-2008, 05:38 PM

It seems that you can accomplish the same thing by investing in a CD inside your 401k if possible. If not you can buy a money market fund inside your 401k if you're taking the money out because you don't trust stocks. I wouldn't borrow from my 401k unless it's a real emergency.

ten_handicap · 10-02-2008, 04:39 AM

Market is down right now but it will rebound but who knows how long that will take. I've lost appx. 17% of my $ so far this year so I am not making any money off my 401K. Once I take the partial loan from my 401K with rate of 6%... the payments goes right back in to my 401K account including interest and I will continue to contrubute up to what my co. matches. I will be locked in around 4.5 or 5% guaranteed rate on CD and I am planning to pay back the whole amount once market recovers. if this is the case... would it be a better idea to invest in CD while market is down so I know I'm making some sort of profit? Thanks for your input on this everyone!

72Tiger · 10-02-2008, 01:37 PM

Sounds like you want to sell now when the market is down to buy some CD's. Then when the market is back up, you want to buy back. The math seems pretty solidly against that.

I feel terrible for the people who are close to retirement right now. For the rest of us, it is a perfect time to invest. Buying right now is like getting a 25% discount. For every one share you bought a year ago, you can buy about 1.25 shares today. When the market bounces back, you will see all that bounce back on all the additional shares you bought.

mike313t · 10-26-2008, 02:57 PM

I agree with 72Tiger about selling low and buying high. I would leave the 401K alone, if anything, right now would be a good time to add to it.

I would rebalance your 401K once you get closer to retirement to move funds to safer vehicles, such as CD's and bonds.

Johansen8 · 10-27-2008, 01:17 AM

Look at your 401(k) as three "buckets" of money: (1) money I might need in the next 5 years, (2) money I might need in 5-10 years, and (3) money I don't expect to need for at least 10 years. The amounts are subjective, although they should be based on your recent past and near term plans.

reelguy · 10-27-2008, 01:49 PM

Before deciding, find out how your 401k is invested. Are you diversified? or is it all company stock funds. Three reasons so many 401k's are spiraling downward is that they are A) invested in stock market funds, B) administered incompetently or C) not diversified enough to withstand the market's high level of volatility. I agree with those who discourage moving into a CD or a money market, there are more profitable alternatives where risk is leveraged. A little bit of research goes a long way.

donnyg16 · 10-27-2008, 07:32 PM

I would never consider touching your 401k account it is to valuable of a retirement vehicle. If you are saving money for the long term, just think about increasing your allocation amount because you are getting shares at a lower price and will make more money in the longterm.

financepro · 10-31-2008, 04:07 AM

Quote:

Originally Posted by donnyg16

I would never consider touching your 401k account it is to valuable of a retirement vehicle. If you are saving money for the long term, just think about increasing your allocation amount because you are getting shares at a lower price and will make more money in the longterm.

IMO, saving for retirement is the best channel for securing your future. I would recommend to contribute as much as possible.

10-01-2008, 11:14 AM	#1
ten_handicap Junior Member Join Date: Oct 2008 Posts: 3 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	401K vs. CD Good afternoon everyone! I'm hoping some of you might be able shed some lights on my dilemma. Due to obvious reason, I'm considering about taking part of my 401k to invest in CD account. My company allows me to borrow money from my own 401K account as a personal loan. It's not considered as cashing out 401K so there's no penalty however I will be required to make payments with low interest which comes out directly from my payroll before tax. The payments that I make goes right back in to my 401K account including the interest… sorta adding more money into my 401K if you ask me. What do you guys think of this move? Thanks in advance!

10-01-2008, 05:38 PM	#3
Xin Lu Wise Bread Blogger Join Date: Jan 2008 Posts: 441 Thanks: 0 Thanked 3 Times in 3 Posts Reputation: (92)	It seems that you can accomplish the same thing by investing in a CD inside your 401k if possible. If not you can buy a money market fund inside your 401k if you're taking the money out because you don't trust stocks. I wouldn't borrow from my 401k unless it's a real emergency. __________________ The Baglady @ http://baglady.dreamhosters.com Wise Bread @ http://wisebread.com/xin-lu Following me @XinLuDJ

10-26-2008, 02:57 PM	#6
mike313t Junior Member Join Date: Oct 2008 Posts: 17 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	I agree with 72Tiger about selling low and buying high. I would leave the 401K alone, if anything, right now would be a good time to add to it. I would rebalance your 401K once you get closer to retirement to move funds to safer vehicles, such as CD's and bonds. __________________ http://www.IRAEducationalMaterial.com http://www.IRAEducationalMaterial.com/RothIRA.aspx

10-27-2008, 01:17 AM	#7
Johansen8 Member Join Date: Oct 2008 Location: USA Posts: 97 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	Look at your 401(k) as three "buckets" of money: (1) money I might need in the next 5 years, (2) money I might need in 5-10 years, and (3) money I don't expect to need for at least 10 years. The amounts are subjective, although they should be based on your recent past and near term plans. __________________ Bad Credit Credit Cards Free Credit Repair Ebook

10-27-2008, 01:49 PM	#8
reelguy Junior Member Join Date: Oct 2008 Location: San Clemente Posts: 1 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	Before deciding, find out how your 401k is invested. Are you diversified? or is it all company stock funds. Three reasons so many 401k's are spiraling downward is that they are A) invested in stock market funds, B) administered incompetently or C) not diversified enough to withstand the market's high level of volatility. I agree with those who discourage moving into a CD or a money market, there are more profitable alternatives where risk is leveraged. A little bit of research goes a long way. __________________ Futures Trading Blog 401k Alternatives

10-01-2008, 11:55 AM	#2
kav122 Senior Member Join Date: Dec 2007 Location: Minneapolis, MN Posts: 526 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (243)	I don't think that I would ever "borrow" from my 401K. If you want to do that, why don't you suspend the contributions and put them in a CD? Then you don't have any risk involved. Remember, if you were to lose your job, you would have to pay all of that money back to your 401k in a short period of time, so in addition to paying interest on your own money, factor in that risk too!

10-02-2008, 04:39 AM	#4
ten_handicap Junior Member Join Date: Oct 2008 Posts: 3 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	Market is down right now but it will rebound but who knows how long that will take. I've lost appx. 17% of my $ so far this year so I am not making any money off my 401K. Once I take the partial loan from my 401K with rate of 6%... the payments goes right back in to my 401K account including interest and I will continue to contrubute up to what my co. matches. I will be locked in around 4.5 or 5% guaranteed rate on CD and I am planning to pay back the whole amount once market recovers. if this is the case... would it be a better idea to invest in CD while market is down so I know I'm making some sort of profit? Thanks for your input on this everyone!

10-02-2008, 01:37 PM	#5
72Tiger Senior Member Join Date: Jan 2008 Location: Knoxville, TN Posts: 301 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (38)	Sounds like you want to sell now when the market is down to buy some CD's. Then when the market is back up, you want to buy back. The math seems pretty solidly against that. I feel terrible for the people who are close to retirement right now. For the rest of us, it is a perfect time to invest. Buying right now is like getting a 25% discount. For every one share you bought a year ago, you can buy about 1.25 shares today. When the market bounces back, you will see all that bounce back on all the additional shares you bought.

10-27-2008, 07:32 PM	#9
donnyg16 Junior Member Join Date: Oct 2008 Location: Ohio Posts: 4 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	I would never consider touching your 401k account it is to valuable of a retirement vehicle. If you are saving money for the long term, just think about increasing your allocation amount because you are getting shares at a lower price and will make more money in the longterm. __________________ How to Invest Money for a Great Early retirement Invesmint

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