Your 401(K) and Your Upline

It has been more than seven years since I quit being actively engaged with Amway, Quixtar, BWW and my uplines, but its impact on my life is felt every once in a while. Here I want to share how my 401(K) account was ravaged by my uplines and my own stupidity in listening to them.

I had quit my Ph.D. degree in March 2005 (a year and a half after I started) partially due to my uplines' discouragement. They never encouraged anyone to complete grad school, even a Masters degree; forget about a Ph.D!

I had joined my first job for a salary of about $50,000/year with a university. They had an excellent 401(K) plan, for which I became eligible six months after joining. The employer match was phenomenally good. Employer contributed twice the employee contributions up to ten percent, so if I put five percent, they put ten percent! I didn't realize how fantastic an opportunity that was at that time. I had listened to a recently released CD by Kevin and Beth Bell in which Kevin Bell made a statement: "We never contributed to any retirement plan at work because we didn't want the stock market or the bond market, essentially somebody else, to take control of our money. If you are contributing to your company 401(K), you don't trust the business enough. Nothing else out there is going to give you as much return as your business."

As naive as I was at that time, I asked my uplines for advice on what to do. My sponsor (and best friend at that time) recommended I go with what Kevin Bell says and not "waste" 5% of my salary on 401(K), which is money I can't touch before 60 without hefty penalties. I actually went to my HR and told her i did not want to contribute and she was literally shocked! She was asking me why i was turning down a ten percent raise! I did not have an answer for her, so I called my sponsor's sponsor, upline platinum RR and explained the situation. RR was way smarter. He asked me to start contributing five percent to get maximum employer match straight away and said that was best in the long run. He also suggested I put all in stocks. His reason? He told me it is anyway a gamble, so just take the riskiest. His reason was flawed. Today I know it is best to invest most, if not all, your money in stocks if your time horizon for investment is twenty five or more years. I did not know it then, but anyway decided to go ahead with what RR suggested. I then updated my sponsor with what RR told me. My sponsor said i should then follow what RR told. All was good. I was thankful that RR gave me the right advice at that time.

You might have read what happened to us later (late 2006), with my sponsor lending $10,000 for us to qualify silver. My wife lost her job a few months later (primarily because she was going late to work after several night trips to San Diego, which is two hours South from LA where we lived). That is when I understood  RR's plan for my 401(K). He recommended I take all the money out of 401(K) to immediately settle the debt with my sponsor! I lost almost 40% of my 401(K) in taxes and penalties and paid off my sponsor. The only solace at that time (late 2006) was that the stock market had given excellent returns. The money I took out was less than $7000, getting about $4200 after taxes and penalty, but had I left that money in my 401(K) in index funds and kept rebalancing, it would have been worth more than $15K in 2016 (in spite of the 2008 recession)!

The point of this is not to discourage you from getting into Amway, but just be careful about what you follow with that they teach. Educate yourself in general finances too. Read excellent books like "Bogleheads guide to investing" to understand how to handle your money. And please do not check with your upline if you should read that book because it will never be in their recommended reading list. They will never have that gem of a book in their reading list, because you really become smart about your money and may not put all your money in their basket.

So this post is not just me whining about something bad my uplines did to me, but actual recommendation to you about how you can save yourself a lot of heart ache in the future by knowing some basic and important things about your finances, 401(K), asset allocation and long term investing, all if which are explained in full detail in the Bogleheads book. (Check your local library if they got that book, if you do not want to spend money buying it.)

Hey, if you succeed making a lot of money in Amway, that small chunk of money in 401(K) won't matter to you at all, so what do you have to lose?