For four decades, patient savers able to grit their teeth through bubbles, crashes and geopolitical upheaval won the money game. But the formula of building a nest egg by rebalancing a standard mix of stocks and bonds isn’t going to work nearly as well as it has.
First of all, I’m ignoring the incorrect assumption of the title that a 401k ever made anyone rich. At best it taught some people not to immediately spend all their money and to instead save some for the future.
The article’s trying to draw a correlation between present times and the 1960-1980 period when inflation was historically high. It assumes that because a 60 40 stock bond split did poorly in that time the same will apply to the immediate future.
To that point, bonds are designed to not perform as well as stocks as they are lower risk investments. Use them only if you are more worried about losing the money(in short term downturns) you’ve already built up than continuing to make your money compound continually and grow.
The reason for bonds in a portfolio is to hedge against the volatility of the stock market. You don’t need them if you aren’t gonna take out the money for 10+ years. Think of them as an insurance policy against the ups and downs of the market. They can help in the short term but in the long term, they are just a waste of money.
The ‘right’ way to invest for growth is to simply invest in a passively managed Fund or ETF with a low expense ratio (~0.05%) that tries to track the SP500 and simply keep holding it in the market. Time in market beats timing the market. Mr. Money Mustache advocates for essentially this approach as well as bogleheads with their investing principles.
Most employer offered 401ks are crap that limits peoples choices to a few ‘select’ offerings and does not include any good mutual funds or ETFs that meet the above criteria. Instead, they have much higher expense ratios that continually drain money from their accounts and rarely even match an SP500 based fund on performance even excluding fees.
The only use for 401ks is to take advantage of any matching policies they have in place. But it’s better to periodically rollover that 401k balance to an self-managed with vanguard IRA or Roth IRA. Any money you want to save in excess of the matching policies should instead be contributed to your IRA or Roth IRA.