What The Big Short Should Tell You About Your 401(k)

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The movie “The Big Short” is now available through most streaming services like Amazon, iTunes, or VidAngel (if you prefer the “bleeping edited” version to the R-rated). This movie is an entertaining look at a typically dry subject and offers a poignant peek inside the housing bubble, shedding light where most of us had never bothered to look. Though most of us were affected by the housing bubble in 2008 in one way or another, we really don’t understand the details of what happened. There was more going on than the headlines offered. This movie should make you second-guess the whole Wall Street, 401(k) system. It’s also an opportunity for us to show you a better way to save for retirement.

Here’s a synopsis of the movie: “In 2008, Wall Street guru Michael Burry (Christian Bale) realizes that a number of subprime home loans are in danger of defaulting. Burry bets against the housing market by throwing more than $1 billion of his investors’ money into credit default swaps. His actions attract the attention of banker Jared Vennett (Ryan Gosling), hedge-fund specialist Mark Baum (Steve Carell) and other opportunists. Together, these men make a fortune by taking full advantage of the impending economic collapse in America (IMDb).” The movie is successful in presenting the events that might typically be boring and complicated in a very entertaining and simple way. Not to mention Steve Carell does a fantastic job playing Mark Baum.

Aside from the obvious history lesson of the housing bubble, some would say it’s a story of taking big risks and being in the right place at the right time. One of the most shocking things about the movie is that so few realized the housing crash was coming. Wall Street, Banks, and nearly every “expert” in the US financial industry chose to ignore the warning signs of a system that would collapse because they trusted “conventional wisdom.” Each player who actually realized there was a problem with the system was at one point viewed as crazy in the movie.

If nothing else, the movie should make you look at other financial sectors in the US economy and question the status quo—systems where people are following like sheep because “it’s what everyone else is doing.” The first one that comes to mind for us is today’s 401(k) retirement strategy. Ask yourself, “Why is an entire generation of people relying on a 401(k) plan for retirement when it could literally disappear overnight?” Then ask yourself, “Where is my retirement money?” Eeek.

Here’s what we recommend you do to keep the past from repeating itself—at least with your personal savings.

Don’t Put All of Your Savings in a 401(k)

It’s become common for us to give our money to the “smarter” people to invest, close our eyes, and hope it will grow—but buyer beware. You’d never trust a babysitter to make life decisions for your child, so why would you hand all of your retirement money to a broker to make decisions for you. In the movie (and in reality), Wall Street firms were as short sighted as everyone else when assessing the risk of subprime mortgage loans and therefore mortgage-backed securities (MBS). And others lacked the character to save anyone but themselves. Even when your investor has the character and competence to help you grow your money, putting all of your savings in the market is a risky move.

Recognize High Risk

Behavioral economics tells us that the most predictable human behaviors are that we are irrational and self-sabotaging (read our blog: Paying Attention Can Save You Money). Human interaction with the market is unpredictable, and emotions, greed, and reflexes can’t be calculated with fundamental technical analysis. The Big Short portrays characters as sure they are right, but the reality is that these guys were totally working without a net. Credit default swaps are insurance on bad loans—and required premiums to be paid. For most of the characters, one more year of paying premiums and their money would have run out. Billions or bankrupt were their only two options. Luckily for them, they stuck it out and won the most depressing lottery in the world.

Our caution with Wall Street is this, if you’re playing, don’t offer more than you have to loose. The stock market will never stop being unpredictable, fragile, and random.

Look Forward and Prepare

Learn from the past, but prepare for the future. The lessons in reality from The Big Short reach far beyond the shelf life of a movie. If you do your homework and know the risks involved, you’ll at least be aware, but the best way to prepare for any down market is to build your wealth outside of Wall Street.

We know a way so simple that it’s been overlooked, yet it’s been proven to work time and again for over a hundred years. It’s called the Infinite Banking System and incidentally it involves insurance. This strategy involves setting up permanent life insurance with a cash addition. You can save your money, watch it grow, and borrow from it for purchases. It’s the perfect alternative to a 401(k).

Because hindsight is 20/20, Hollywood has the luxury of making some of the characters right and some wrong (even if there are no heroes in the story). But we see the movie as a sequel to human nature where everyone loses—another example of the masses being smacked in the face by something they didn’t see coming. And because what goes up will likely come down, take a few minutes to learn about the Perpetual Wealth Strategy and discover a way to get off of the roller coaster of Wall Street.

Education, preparation, and wealth strategy are our specialties, and we are dedicated to help. Our FREE Infinite Banking ecourse called Infinite 101® only takes 2 minutes to sign up and gives you free access to video tutorials, articles, and podcasts. It literally costs you nothing to become educated on this ideal financial strategy and start changing your wealth paradigm!

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