How to Build a 401K Money Machine

How confident are you in your current 401K investment strategy?

Over the past 14 years, I have generated millions in retirement savings for myself and others using a simple, proven 401K strategy.

You can steal my 401K Operating System here:

Investing can be daunting, especially for busy professionals who already juggle demanding schedules.

Navigating your 401K investments might seem intimidating, but it’s a critical step for someone who's looking to ensure a comfortable retirement.

By understanding and maximizing your 401K plan, you can build a solid foundation for long-term financial security. 

In this newsletter, I’ll share my seven-step strategy that has helped me, and many others achieve financial confidence.

Why Your 401K Strategy Matters

The importance of a robust 401K investment strategy cannot be overstated.

As working professionals, it’s crucial to make informed decisions about your retirement savings to avoid financial pitfalls and maximize your returns. With employer matches, tax advantages, and the power of compound interest, your 401K can be a powerful tool in your financial arsenal. But how do you make the most of it?

Now, you’re probably thinking, "Isn’t my current 401K strategy enough?" Here’s the thing: many people don’t realize they’re leaving money on the table by not fully leveraging their 401K plan. 

But you're not going to get rich saving money in your 401K which is why after you've mastered these steps, you need to move on. 

Let's talk about it. 

The 7 Step 401K Operating System

Here it is folks, my simple, proven system for maximizing your 401K performance. 

Step #1: Find Your Critical Mass Index Number (CMI)

No one wants to spend their entire life saving for retirement.

No one wants to retire without enough money either

That's why the number one, most important personal finance decision you can make is to find your Critical Mass Index Number. This is the number that, once reached, allows you to STOP (yes I said stop) contributing to your retirement. You should find this number an make it your number one personal finance priority to hit it. 

Why is this number so important? 

Because once you have enough critical mass in your investments, your money works hard than you through compounding. You will reach a number that at some point even if you only hit your minimum return, you will still retire with plenty of money. 

This is the beginning of true financial security. 

Use a calculator like the one I created to find this number and set a goal to reach it.

Download the calculator here .

Step #2: Understand Your 401K Plan

Not fully understanding the investment options provided by your employer is costing you money and if ignored will potentially cost thousands if not hundreds of thousands of dollars over your career. 

In order to get the most from your 401K, you will need to understand the different investment options available. There are three basic types of investment options available stocks, bonds, and cash equivalents. These may be packaged together in the form of a mutual fund or time date fund, but they all consist of the same basic investments. 

However, not all investment options are created equal. 

Some options will perform better than other and may also carry higher fees which are called an "expense ratio". It is called a ratio but is usually expressed as a decimal percentage like 0.03. The higher the number, the more you will pay in fees.

Review the details provided by your employer. Understand the investment options available, the employer matching contributions, and associated fees.

Step #3: Maximize Employer Matching Contributions

Did you know you could double your retirement savings just by maximizing employer matching?

That's right, if you're employer has a matching contribution, you could earn a 100% return on your investment. In the world of investments, a 100% return is legendary. This means that for every dollar you invest, your employer also invests a dollar.

If you're employer provides a match, then take it, otherwise you could be missing out on thousands. 

• Contribute enough to receive the full match from your employer (immediate 100% ROI).
• Set up automatic contributions to ensure consistency.
• Never contribute more than the match to your 401K (I’ll tell you why below).

This single step can make or break your 401k savings plan. 

Step #4: Avoid Default Investments

Default investments are like the fast food of finance—convenient but not always nutritious. 

I used to believe default investment options were the safest choice until I dug deeper. After all, my employer is looking out for my best interest, right? For years, I stuck with default investments and watched my portfolio stagnate. 

Until I realized that you could achieve far better returns by steering clear of default investment options.

These days the default investment options typically fall into one of two buckets, either mutual funds or time-date fund. However, some employers every offer company stock. It is a mistake to stick with the default options. Mutual funds and time-date funds carry similar risk, never outperform the market (S&P 500), and charge fees as much as 10X more than necessary to achieve the desired result. 

Blindly trusting default investments can sabotage your financial goals especially when holding company stock which carries tremendous single stock risks. 

A single stock usually corrects 2-3X the market averages. This means that if the market goes down 1%, then your stock will go down 2-3%. If the market corrects 20-35% like it has in the most recent 2022 bear market and your holding stock, then you may be off as much as 90%. 

Default investments rarely align with your personal financial goals. If you want to improve your 401K performance, here's what you should do. 

• Sell company stock in your 401K to avoid single stock risk.
• Get rid of default mutual fund and target date fund options that usually charge higher fees and underperform.

You can achieve far better results by steering clear of default investment options. 

Step #5: Buy Index Funds Only

Investing in index funds are the simplest path to consistent market returns. 

Most mutual funds and target-date funds underperform the indexes and charge higher fees. Buy index funds instead—they charge lower fees and since they mimic the market, they achieve near market returns. The 100-year average of the S&P 500 index is 10%.

This is the most you can expect from a passive investment like a 401K.

If you're interested in learning more about index funds, then check out this article by Investopedia. 

Step #6: Automate Your Contributions

If you're not automating your savings, you're doing it wrong.

Automating your contributions is the key to consistent savings growth. 

• Set up automatic deductions from your paycheck and automate investments into an S&P 500 or Nasdaq 100 (tech heavy but usually better performance) index fund.
• Review your contributions annually and increase them, if possible, but only up to the employer match.

Once you’ve reached the match, begin contributing to an IRA for better investment options (preferably Roth for tax advantages). 

Financial discipline is overrated -- automate your contributions for the best results. 

Step #7: Monitor and Adjust Your Portfolio

Keeping an eye on your investments is key to staying on track with your financial goals.

• Regularly review your investment performance.
• Adjust your index fund to cash (money market) ratio as you approach retirement.
• Seek advice from an investment advisor to make informed decisions.

Beyond the 401K: Educate Yourself and Become an Individual Investor

401Ks are limited and won’t make you rich, so it’s important to move beyond them. Subscribe to financial newsletters and blogs for updates. Take courses and find proven investing systems that make your money work for you.

Big Takeaway

By following these seven steps, you can build a solid foundation for a financially secure future, ensuring peace of mind and a comfortable retirement.

Focus on these steps first to save yourself hundreds of hours and thousands of dollars trying to secure your financial future through 401K investments alone.

Start today and take control of your financial destiny.

Key Takeaways:

• Find your Critical Mass Index (CMI)
• Understand your 401K plan
• Maximize employer matching contributions
• Avoid default investments
• Buy index funds only
• Automate your contributions
• Monitor and adjust your portfolio

By implementing these strategies, you’ll be well on your way to securing your financial future.

P.S. you can reply to this email directly. I would love to hear from you. Was this helpful? What are you struggling with that you would like me to write about?