Should I Invest in a 401K or IRA, or Investment Real Estate?

7 years ago · 3 minute read

AMA question #4:

“There are multiple mentions on the OOL speaking against IRAs and 401ks … is that true? are we that opt out against traditional retirement strategies?”

Here’s our answer.

Key points:

• Investing in 401Ks and IRAs is “opt in” not “opt out”.
• That doesn’t mean we “hate” them, but if you want to subscribe to our approach to long-term investing, the answer is investment real estate.
• Traditional retirement accounts are nice if you don’t have the time or energy to do anything else.
• Investment real estate provides several benefits we love: appreciation, depreciation (tax write offs), and passive income.

AMA #4 Video Transcript

Dana Robinson: There are multiple mentions on the Opt Out Life speaking against IRAs and 401(k)s, is that true? Are we that opt out against traditional retirement strategies?

Nate Broughton: Yes. I know who this question came from. It’s actually a local friend of ours, and yes, we are against those things. I think we have to be. I think we have to draw a line in the [inaudible 00:00:20] somewhere, and I know you’ve got some more practical tips on this to answer the question. But, let me just say, yeah, that’s not opt out, that’s opt in. If you wanna do that, that’s fine. That doesn’t mean you can’t live the opt out life and do other opt out things. But that’s kinda boring. Devin, don’t be such a pussy. I want you to invest in real estate not 401(k)s.

Nate Broughton: And actually, let me tell a little anecdote on this. So, if you wanna understand the opt out life, my wife was a teacher for six years and she paid into this 401(k) plan that they required her to do because she was part of the union and whatever, and I didn’t actually even know about this. When it came time for us to move to San Diego, I guess we got a letter in the mail that was like, “What do you wanna do with this account now that you’re quitting,” and there were like $21,000 in it. I cashed that thing out, took a penalty, spent all of it on a trip to Asia. It was awesome. I don’t care if that money was worth $50 grand a day and $250,000 grand when we’re 50 years old. That’s the opt out thing to do with 401(k) money.

Dana Robinson: Look, I had a 401(k) when I left the law practice. There was probably three years worth of contribution and it had like $8,000. It’s in a rollover IRA that has $12,000 in it. So, it’s taken 16 years to double in value. In that amount of time, the real estate ventures that I’ve had have turned $6,000 to $60,000 to $600,000, and up. So, you know, what I like about real estate as an opt out strategy is you can buy it with leverage, you can have your renters pay your mortgage for you, and over time they’ll pay your mortgage off, and at the end when you wanna retire, you still own that asset. You own it outright. It’s a fourplex worth millions, and it’s throwing off $10,000 that you get to live on. You just can’t do that with traditional investments.

Nate Broughton: Right. But I think the reasons to do this would be, you know, if you want something that’s pretty hands off and easy, if you feel like you’re stretched too thin in your time, or you’re interested in investing, I think there are reasons to say, “Okay, I’m gonna at least throw some money in here and see if it grows ’cause I don’t wanna do the leg work to invest in real estate or put that into a side gig.” I can get that, but it’s not very opt out.

Dana Robinson: Yeah. I have 10 to 15% of my net worth in an investment account with an investment advisor. So, I’ve got a little opt in, and it’s always healthy to compare. I think I out perform him every year.