My retirement does 6%--Do I drop it like it's hot?

[Ashley Benning]

I have about $0 saved up for REI. It all went into the purchase of my primary residence a year ago, and now that I'm stepping up my REI game I'm regretting that. Live and learn. My down payments with HMLs comes from my parents, who will earn interest from me matching the HML's rate. I have little of my own cash in the game thus far. Obviously the intent is to change all that with profits from flips and BRRRs over the coming years. I have various retirement accounts with not a TON of cash in them--only about $25k-- and in analyzing the returns I'm averaging about 6% in my current 401, and that includes the growth from the company matching. I'm wondering if I should stop my 401 contributions and set aside that $300 per paycheck in a business checking account so I can build up my own cash reserves and not have to rely on other people's money so much. Of course, I lose out on the compound interest and company matching if I do that. And/or, do I take the hit and pull out my current retirement savings? Dave Ramsey fans would say no, but if having the cash allows me to make other investments could it be worth it? I'm 33 years old, and hope to build wealth through REI such that I can leave my full-time w-2 within the next 5 years (hopefully sooner). Thanks, friends!

[Joe Villeneuve]

The answer isn't simply, "stay diversified".  What if your "diversified" choices stink?  Staying in a bad investment, just because it makes you diversified, doesn't make that a good investment any more than investing in your own area just because you know it, makes that area the best place to invest.  A bad investment is a bad investment.

Everyone has their own choices to make, but from what I've seen (and calculated), most retirement plans are only good for the retirement of the person that sold it to you.  All you have to do to understand this is "follow the money"...and go watch the movie Trading Places.  Specifically watch the scene, and the dialogue, between Eddie Murphy and and the Duke brothers when the Dukes are explaining " how it works" to Eddie Murphy.  Murphy's comment and reaction says it all.

I'm not saying these funds don't have their place. Everything has its place, but it also has its time...and the time for these investments are at the end. You are not going to make it rich waiting for these investments to grow. That's what REI does for you. The "funds" are investments where your REI profits gain interest...and it's that interest (cash flow) that you can live off of...but, you have to get your "base deposits" into these funds large enough to generate high enough interest income (not interest rate) to live off of them first.  That's where REI comes in.

1 - REI grows your seed money

2 - Seed money compounds itself through reinvestment back into RE

3 - Profits from REI is deposited into interest bearing investments

4 - Continued re-use of seed money (you never spend it...just use it an infinite # of times) generates new profits

5 - New Profits from REI are deposited into #3 above

6 - ...repeat until tired, or bored. 

...and to your original specific 6% question, my best answer is with a question of my own:

If, you needed $100k a year to live off of in retirement, and your source of "base" generated that 6% in interest per year, which means your "base" would have to equal almost $1.75M, can you rely on that same 6%/year to get there?