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Thursday, October 27, 2016

Grant Cardone Shuns 401 (k)

Grant Cardone gave an interview on CNBC trashing the 401 (k) as a savings vehicle, "Self-made millionaire: Don't put money in your 401(k)".

If you're like me you're wondering "who is Grant Cardone"? Google his name and you find that he is a motivational speaker, specializing apparently in teaching people how to sell. In other words, he is a self promoter. If the thought is crossing your mind that we have too much self promoting already we are on the same page.

Mr. Cardone claims he made his first million at the age of 30. He was 30 years old in 1988. For the record, if he had $1 million in a 401(k) back then, invested in the S&P 500, today it would be worth approximately $8 million ( (1.07864 ^ 28) * $1.0 million).

I'm sure he is worth considerably more and could probably easily find out by buying the book he is promoting. I'm sure in his mind he can take people off the street and turn them into millionaires using his sales techniques.

All of this of course is quibbling about hypotheticals in my view. What I do have a problem with is the message to stay away from the 401(k) and try to become a millionaire. The planet is littered with people who have tried and failed and have no back up.

Look at like this. Kids spend the summer lifting weights, throwing a football through a tire and running wind sprints. Then the fall comes and the tryouts for quarterback are upon them and only one gets to be the starting quarterback. Similarly, kids take dance lessons, singing lessons etc. and then the tryout for the lead in the school play is held. One person gets it.

There is only one Tom Brady. Telling people to forget the 401(k) and seek a fortune by starting a business is like counseling a high school quarterback to try and become a low draft pick and be the next Tom Brady. I suggest having a back-up plan just in case.

Mr. Cardone states, "Why would I go to work, have my employer give me another $6,000 a year, and then take that money and send it off to Wall Street, where I can't even touch it for 30 years? 

The answer is pretty straight forward: because by doing so you are investing in the greatest wealth creating economy the world has ever known in the beginnings of the information age betting on entrepreneurs creating products we cannot even begin to imagine. To most people this makes sense when they realize that the day is coming when they will be 65 years old.

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