Please ensure Javascript is enabled for purposes of website accessibility

Should a Millennial Invest in Individual Stocks if His 401(k) Isn't Maxed Out?

By Motley Fool Staff – Oct 13, 2016 at 6:43PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Listener John B. is contributing a nice chunk of change to his tax-advantaged retirement plan. But should it be more?

In this segment of Motley Fool Answers, Alison Southwick and Robert Brokamp, along with Motley Fool Wealth Management's Sean Gates and Joe Perna, consider the appropriate investment vehicles for a 20-something who (well done, John!) is already putting a fair share into his 401(k) and routing some to a brokerage account as well.

The answer rides on one word: flexibility.

A full transcript follows the video.

The $15,834 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

This podcast was recorded on Sept. 6, 2016.

Alison Southwick: John B. writes: "A friend recently mentioned that it doesn't make sense for people our age, in our late 20s... " Yes, John, that is our age, should anyone ask. I am in my late 20s. "... to be investing in a personal brokerage account if not maxing out a 401(k)." He continues: "I contribute 11% to my 401(k) with an 8% employer match. I also contribute biweekly payments to some index funds in a side brokerage account. Does it make sense to bump up my 401(k) contribution and eliminate my brokerage contributions?" Joe, this one's going to you.

Joe Perna: Yes. I would say [good for] John B. for saving diligently into the 401(k). It's good to get started early, so late 20s I would say, is starting fairly early.

Southwick: Yeah, that's good.

Robert Brokamp: That's pretty good.

Perna: And saving 19% will mean taking into account the employer match. That's pretty hefty. That's a good chunk to be putting toward the retirement plan. When thinking about saving into a 401(k) in the taxable account, I like the idea of having a taxable account due to the flexibility that you have.

That flexibility is huge when you're thinking about down payments for a house. When you're thinking about wedding costs if you're not married yet, or wedding rings, or automobile purchases. All of those things. Cost funds -- you need to be using money. When it's tied up in retirement accounts, you can't access those funds as easily.

So those taxable accounts, I think, are great. To me, the flexibility is fantastic, and I would say 19% is a good amount to be putting toward retirement. Additional flexibility is fantastic. I think there's not a problem there, and I would disagree with your friend. Maybe defriend him on Facebook.

Southwick: Oh, ho, ho.

Perna: Maybe not that far. But I think you're doing a great job, John B.

Southwick: So the next time a friend recently mentions that, then he can say, "No! I enjoy the flexibility that my taxable accounts give me because I plan on getting married and doing all these wonderful things with my life."

Perna: That's right. Stay out of my business.

Southwick: What do you know about me? You don't know me, friend!

Gates: The next time he talks to people, he won't have anyone to go to, because he will have alienated all of his friends.

Southwick: Who were just trying to help. Oh, man.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.