There are many reasons:
One of the MAIN reasons for contributing to a company?s 401 (k) is because if you don?t, then you will lose the money your employer is willing to match and give you for free. When an employer matches your contribution, it means free money for you.
However, if an employer doesn?t match your contributions or if you are already contributing as much as the amount required to match, then most financial analyst suggest you use other ways to invest your money for your future retirement. Why, you may ask, and the reason are many, I will just list a few:
1) You don?t want all of your eggs in one basket. If all or most of your money for retirement is in a 401 (k), then you?d run a higher risk than if you spread it in other types of investment vehicles.
2) 401 (K) plans are limited- you?re not free to choose what to buy. So, just like the 2 or 3 health insurance plans your company may offer from 1000 available in the market, your company selection is very limited and may not be the most profitable for you.
3) When you buy 401 (k), your money is also used to buy stocks from your employer- think Enron. So if your company is going to the tank, not only will you be losing your job, but also your retirement money.
4) When you invest with a brokerage company (through a Roth IRA), you may be opening your chances to the wider world of investments- diversifying your investments, and thus your risk.
Even if with a 401 (k) you also have the chance to invest money in tax-free, this isn?t still good enough without your employer?s matching due to the limited portfolio available and your inability to choose the best for you.
So part of the FA job isn?t only to make you money, but also assess your risks as to preserve the money you already have.
Don?t keep all of your eggs in one basket.
I hope this helps clarify your question.
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