Most people are petrified by financial decisions – so much that they prefer to throw away money rather than think about what to do with it. The principal reason for choosing to have a financial adviser is seeking to avoid any need to make financial decisions themselves.

Unfortunately most financial advisers are mere mortals – incapable of coming up with superb financial decisions suitable for most of their clients who are wage earners, business owners and investors. Instead the product of their labours is very much substandard.

The clearest example of how deficient professional financial advisers are in rational economic decision making is illustrated by their inability to solve elementary investment problems in the realm of 401k.

For instance clients reach out to them for help with the simplest of investment analysis on 401k issues and How best to manage their money?

An elementary understanding of 401k basics is essential – something which the average worker is not ofey with. Therefore 401k clients are reliant on financial advisers to come up with the answers.

However from a multitude of recommendations and commentaries I have read published by financial planners holding professional credentials the industry seems split as to whether a 401k investor should borrow against their investment holdings.

Those using emotional arguments as to the wisdom for not borrowing can be dismissed instantly – it is not the role of financial advisers to prognosticate on emotive issues when financial analysis is required.

Those who accept that rational financial analysis should be the criteria for 401k decisions. Yet such recommendations to clients appear to be in the minority, evidenced by industry statistics showing that the average of workers’ Personal 401k Contributions is a low 7% of wage.

Here is a simple economic exercise where the problem to be is solved is to make rational 401k investment decisions – (split in to segments):

i) should a 401k investor ignore risk-free investment opportunities?

Every worker on average wages or higher is able to make guaranteed profit of $5,000 after tax simply by accepting the Generous concession from the IRS of 100% tax deductibility of a workers Personal 401k Contribution at maximum level – this year $19,500 is the permissible investment limit.

It is easy to calculate that a worker with marginal tax rate of 25% entitled to a fully tax deductible 401k investment of almost $20,000 will get a tax rebate of close to $5,000.

Should every financial adviser be recommending that workers Personal 401k Contribution be maximized – 50% of an average wage; not 7%?

So what has gone wrong?

Can every Financial Adviser PLEASE EXPLAIN?

If an adviser has prefaced their occupational status with the word “financial” on their business card – it is expected that they understand finance and planning – sufficiently well to know what leveraged investing is, and how money can be borrowed – at least $20,000 – without too much acrimony.

Following that strategy an average wage worker can max out their Personal 401k Contribution to be able to put 50% of their pre-tax wage in to their retirement account ($20,000). In which case retirement years can be looking good.

ii) Some Financial Planners and Accountants will try to wriggle out of (ir)responsibility by pulling out their calculators and a workers pay packet showing insufficient funds. Of course most workers do not have savings or enough disposable after tax funds to be able to make a Personal Contribution at maximum level. Thus an adviser might gloat thinking they have proved the impossibility of a 401k funding proposition of the maximum amount allowed by IRS.

If that is your financial adviser’s conclusion their stultified thinking limits your 401k contributions instead of maxing out at $19,500. They should be stripped of their spurs and run out of town on a rail.

While you are still working nominal discretionary income (what is left to spend after tax) might be close to two thirds of earnings – but alas living costs such as mortgage payments, car expenses, childrens’ education, family food and clothing bills leaves little to no disposable discretionary income.

By borrowing to put $20,000 in to your 401k each year you remain at work (say 25 years) the retirement nest egg on heading to the ranch could be half a million dollars – achievable with the above strategy. A lot more depending on your investment selection and underlying assets.

If you need more insight, assistance for implemention and ongoing management – that is available for the asking.


The Economics of 401k Investing

Most workers have a 401k investment – yet few have a risk free investment strategy with a guarantee of profit …

Even fewer have an investment strategy which uses leverage to yield a guaranteed profit of over 500% ROI

There is zero risk with either investing approach as the profit is produced the moment your investment is made in to any underlying type of investment – – whether equities, bonds or cash.

This is simply because the IRS guarantees the result as a tax rebate on the money invested in to your own 401k fund even before you decide what type of underlying investments you wish to allocate your money to.

The instant returns you make are based on your marginal income tax rate. which is between 25% for average incomes and higher as incomes rise. For average incomes the dollar tax savings when you invest in a 401k is 25 cents per dollar invested. That is, investing $4 gives you back $1 such that for an after tax outlay of $3 you end up with $4 in your 401k fund and $1 in your pocket (*the tax rebate). The ROI on the after tax cost of $3 amounts to a 33% return – with zero risk.

Investment risk results after an investment is made – and reflects the fact that loss can stem from market volatility – which is able to be managed with investment selection and deeper financial strategies.

The fact that you have a 33% profit in your account day 1 gives immediate insulation against market downturn or it may be used to buy portfolio insurance,



Thought should be given to the merits of leverage – which can substantially enhance ROI. For example assume you can borrow investment funds at 5% p.a. – the cost of funds becomes zero as earnings commence day 1 of the investment whilst interest is paid most often in arrears, at the end of the year or periodically over time and that expense can be paid from earnings during the year (covering loan costs annually from earning during the year and not from the tax rebate immediate return).

How many 401k investors ever do the math for leverage investing in to their fund, and where are financial advisers, accountants, planners and life agents in that respect?

It appears they have all gone for a walk together – leaving the baby in the bathtub alone.Private Equity

A pre-occupation that most professional advisers have is the cost of borrowing, as measured by the interest rate. Few if any look at the cash flow in evaluating the strategy of using borrowed funds to invest and in particular how the numbers work when the investment is made in to a Tax Advantaged vehicle like a 401k fund with its Tax Privileged Status?

The strategy is immaculent – yet who has heard professional advisers extolling its virtues and wholeheartedly endorsing it in recommendations to their clients?

When interest rate expense is examined the principal which is borrowed to make the investment and on which interest is paid is not what it appears to be to the naked eye. The immediate tax rebate can be applied to diminish the loan amount by 25% or more, yet the capital actually invested and on which earnings are based can be 33% greater.

Recalculate that 33% – to the equivalent as a tax free profit (Investment Earnings while in the 401k precinct remain untaxed until withdrawal – However tax may be avoided entirely when you know how)

When the tax rebate is used to pay down the borrowed sum (by 25%) – if interest is 5% for the initial loan (for example on an initial loan of $20,000 which can immediately be paid down by $5,000 to $15,000) the cost of funds drops to $725; which is an effective interest rate on $20,000 of 3.625% annually for the remainder of the loan term – during which earnings will be generated on $20,000 of invested capital.

When evaluating leveraged investing the interest rate for borrowing should not be an issue. Economists know that the amount of additional capital you can access and the dollar amount of return are the 2 most vital elements – not the interest rate.

For an Economist borrowing to invest in your 401k Plan is far superior in terms of returns, to non-geared investments

An additional benefit which eludes bean counters is using leverage preserves cash and is a reserve which everyone needed in the pandemic.


What is the ROI of leveraged investment for your 401k?

First get real and recognize there is no point playing Mickey Mouse with your Retirement Investing.

There is no earthly reason for every worker not to maximize the 401k contributions going in to their retirement fund. Forget the idiotic advice of so-called professional advisers who can not do math nor understand Economics – Dump them!

The maximum contribution allowable in 2021 in to your 401k as a Personal Contribution is $19,500.

That is what you need to borrow to put in to your fund this year.

It is cost free and can be self funded, as it will give you back $5,000 in a tax rebate.

While there is zero cost of borrowing the investment capital to contribute you might arbitrarily determine interest expense of 5% as a rate on which to do your calculations

Assuming you pay down the loan amount to $15,000 the cost on which to base numbers is $725 – which yields $4,275; ROI is thus 589.65%.

However the reality is with zero cost of funds ROI is infinite.


How do you feel about an additional $6,000 tax rebate (every year?)

Is your current financial adviser ensuring you receive that?

In which case your total tax saving each year could be around $11,000.


This is Not a Story – it is REAL MONEY, YOUR MONEY – going down the drain.

Care to close your fist on it?

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It is RARE these days for employers to provide 100% matching contributions to workers Personal 401k Contribution – especially when workers max out at $19,500 what they put in to their fund.

Economic circumstances and the impact of Covid-19 plus poor advice from professionals on financial management, wage structuring and 401k plans has led to a recent accelerating shift away by Employers from matching contributions.

That is a retrograde step in business financial management and for workers in their retirement planning – which employers should redress across the board IMMEDIATEY.

Professional Financial Advisers have a lot to answer for in that respect and seriously bring themselves in to disrepute – displaying incompetence in the field which they purportedly hold qualifications.

However irrespective of what employers choose to do Workers following our advice can still get 100% matching contrbutions at the maximum allowable amount.

That will give employees a full $19,500 employer matching contribution

iT may not be as good as it should be – but it CAN GO A LONG WAY TOWARDS BUILDING EMPLOYEES RETIREMENT FUNDS

Our recommended strategy involves salary repackaging and diverting wasted tax dollars in to your 401k Plan by:

  • first allowing Employers to re-capture cash outflows,
  • reduce wage costs – which include FICA for them and Employees,
  • and arbitraging income tax differentials.

Consider this outcome for Employees:

A salary sacrifice of $20,000 saves employees $6,000 in income tax and FICA disappears – so the cost to a worker after tax is only $14,000 (which can be recouped with various strategies to ensure there is no loss in after tax spending power of income workers would normally receive)

  • Employer recaptures $21,500
  • $6,000 (otherwise lost by workers as Income Tax)
  • plus the $14,000 of disposable income otherwise in the hands of a worker after tax on their earned income
  • including $1,500 of FICA Employers would face if $20,000 had been paid as salary instead of being sacrificed by a worker.

The total $21,500 recapture might be subject to income tax – but instead they contribute to an employee’s 401k – for which they receive a 21% tax credit – leaving only $1,500 subject to tax.

They Employer benefits from the differential of 21% Corporate Income Tax rate – compared to the 30% lost by Employees if paid as wages.

The Employee receives $20,000 in to their 401k instead of $14,000 disposable income. ROI can be calculated using those figures *(42.8%).

Using Leverage for the $20,000 investment @ 5% the cost in terms of Cash Flow for an Employer is just $1,000 for the $20,000 investment.

  • In the process $6,000 Cash goes to Employer – which can be retained or used to reduce the loan amount needed to make the 401k contribution.
  • Employer saves $4,200 in tax,
  • worker saves $6,000 in tax
  • (and has $6,000 plus $14,000 – total $20,000 go in to their 401k as an Employer matching contribution)


Once Employer Contributions are made the Plan Owner may borrow 50% of the aggregate of total capital in their funds – which previously was a maximum of $50,000 – now $100,000 (resulting from the Pandemic)



  • Exit Tax
  • Robs Plan


Corporate Investment & Business Management

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