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Retirement Accounts are Dumb Money

Last updated on June 27, 2020

Retirement Accounts are Dumb Money

My friend called me the other day and said, Guess what?! I started investing in a 401k!

That’s great. What are you investing in?

The phone went silent….

I just told you, I’m investing in a 401k.

What is Dumb Money?

My friend is dumb money.

They say the difference between dumb money and smart money is the amateur investor vs. the professional investor. For example, dumb money investors buy stocks when they are expensive, while professional investors buy when they are the cheapest.

But that’s the wrong way to look at it.

That definition assumes my friend is buying and selling stocks. That she is watching CNBC, reading The Wall Street Journal, and trying to “beat” the market.

My friend doesn’t even know what a stock is.

She hasn’t grasped that a 401k is just an account that the government permits us to buy stocks and bonds in using pre-tax income. She thinks a 401k is the investment.

My friend is actually dumb.

But it’s not her fault.

The government failed in providing a safety net for elderly Americans.

So, in their corrupt style, they launched a campaign with the financial services industry to encourage every American invest in the stock market and fund their own retirement.

If you stop and think about it…isn’t that weird? 

There are zero personal finance, investing or financial literacy courses in the American public school system.

There is no “How the Stock Market Works” class in public school that even attempts to level the playing field between us and Wall Street.

It’s almost like they don’t want Americans to understand how the stock market works…

Related Reading: Is a 401k Worth It?

Retirement Accounts are a Deal with the Devil

Why did the government make this deal with Wall Street?

Is it really just because Social Security failed?

Tax-sheltered retirement accounts only allow you to invest in stocks and bonds.

Why not land? Can’t buy collectibles? Real estate doesn’t count? Why not private businesses?

They encourage us to invest in a single asset class (stocks and bonds) that is guaranteed to benefit Wall Street but is a total crap shoot for the individual.

This is how I imagine the deal was made:

We will pressure the American public to invest in stock market. Our campaign will make it seem “responsible” and “safe.” They will send a portion of every paycheck to Wall Street, and do this like clockwork for ~40 years. They will have no idea where the money is going, how much they are paying in fees, and they are unlikely to ask these questions. We will make it illegal for them to withdrawal their money. If they do, we will charge steep penalties. And taxes. Wall Street can do whatever they want with the money. If Wall Street loses it, no worries, the citizen should have understood the risk. The citizen will retire at 65 and hopefully Wall Street left them enough to live on. But if not, no big deal. For 40 years, Wall Street’s fees padded the pockets of the bankers and politicians alike. The deed is done 🙂

Every trade, sale or change in the American’s retirement account results in commissions and fees for Wall Street.

If the account is $0 by the time the American retires, Wall Street is not held accountable and the government looks the other way.

Uh, thanks?

Related Reading: The Pros and Cons of Index Investing

Five Reasons Retirement Accounts are Dumb Money

#1. Blind Investing

It’s common for us to complain that evil corporations ruin our country and exploit our workers. My question is why do you send these evil corporations hundreds of dollars every month?

The large majority of Americans have no clue which companies they are supporting, nor do they care.

And Wall Street and the government don’t want you to gain a conscious. The scam won’t work if we all became conscious of where our money was going.

#2. Horrible Terms

It is illegal for you to use your own money from a tax-deferred retirement account.

I once had $50k in a retirement account that I wanted to use on a real estate project. Uncle Sam said I could only have $35k, though. They fined me $5k in fees (on top of the fees Wall Street had already charged) and another $10k in taxes.

Have a medical emergency? Family emergency? Did you discover your life calling and need money to make a move?


#3. No Guarantee

You could spend decades contributing to a retirement account and have nothing to show for it by the time you hit 60.

The stock market is not a guaranteed. Why wouldn’t the government focus on fixing Social Security? Why do they want you to enrich Wall Street and risk your nest egg in the stock market?

Globalization and extreme sovereign debt levels are enough to make you pause about putting your savings into an asset class you have zero control over.

People say this is absurd to consider, but I say black swans happen.

#4. Discriminatory

The majority of Americans invest in retirement accounts through their employers.

If you happen to work for a company that offers a great retirement plan comprised of low-cost, well-diversified funds? Good for you! You might be able to retire.

But if you work for a company that signed up with a bad custodian? And your only choices are to invest in expensive, obscure funds? Sorry, you probably won’t be able to retire.

What a ridiculous and unfair system this is.

If you invest $1k and earn 8%, the principle will grow to $140k after 65 years. But if the fund charges a 2.5% fee, the net return is not 8%, but 5.5%. At the end of 65 years, because of fees, $110k will go to the fund manager, and you the investor get $30k.

This is a sneaky way to transfer yet even more wealth to the 1% why the American public remains clueless.

#5. Black Swans

Tax-deferred retirement accounts sell the assumption that taxes will be lower in the future.

They say taxes will be lower in the future for all of us, but also for you personally because you’ll be 65 years old and won’t have ordinary income anymore (thus you’ll be in the 10% tax bracket).


  • It’s very common for 65 year old’s to still be working.
  • It’s also very likely, given our national debt, that taxes will be higher in the future. For everyone.
  • What’s to stop the government from taxing all retirement accounts at 50%?

Too many Americans are too uninformed when it comes to their assets. They put all their wealth in their home (via a 30-year mortgage) and retirement accounts they don’t understand.

Related Reading: Does the American Dream Include a House?

Retirement Accounts are Dumb Money — Don’t Do It. 

Retirement accounts were set up because people can’t be trusted to save on their own.

So why not at least make sure Wall Street gets paid? Trickle down economics, right?

News flash: You can invest for retirement using a taxable account. You will pay less in taxes GUARANTEED because of the 15% capital gains rate. Sure, you’re investing post-tax dollars, but I prefer settling up with the government sooner rather than later anyway.

Think about the opportunity cost of retirement accounts. The marketing campaign says investing in the stock market will “safely secure your golden years.” But what about life today? That money could be used to flourish TODAY, not 40 years from now.

So stop being basic and reconsider retirement accounts for what they are: a total scam.

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