@nikki225 One nice thing about this exercise is that it is very easy to model and compare your scenarios and see if you can come out ahead. If you don't have the ability to do that you are likely just gambling. I'm starting a new comment instead of responding to the old because here are some additional thoughts.
It can be a really good idea to take a 401(k) loan if you are looking at non-traditional investment that is unavailable in a 401(k). It is still risky, but say you wanted to take a $25k 401(k) loan today to buy an original Basquiat print, and you know a lot about art and the secondary market and you have the ability to judge etc. etc. all the caveats. The point is, you are investing the money in a substantially different area than the market. Then, if market performance is poor you can really come out ahead - instead of taking a 10% loss on the $25k you get a 5% gain from the interest you pay yourself (though you have to be careful how you calculate this gain overall) *and* you have the Basquiat. Or, you could make this argument for buying real estate or even REIT, etc. to increase your diversity.
This can apply to something as simple as taking a 401(k) loan and throwing it in an HYSA while you wait out market turbulence, but this is just simply timing the market which if you can do it good on ya but most people cannot.
Of course the other problem is that over the course of the 5 year term of the loan, it gets harder and harder to simply beat whatever funds you have.
If you are simply taking money out of your 401(k) in order to invest it in areas of the market that your 401(k) doesn't cover then you are still at the whims of the market. And it's fine if you want to do that but in this sub you aren't going to get much in the way of endorsement to take a 401(k) loan to buy 50000 shares of your best friend's sister's boyfriend's brother's girlfriend's fuel cell company.
If you say no NO NO NO NO I am a safe investor I just don't like my fund choices in the 401(k) and would rather just take the loan and buy VTI in my brokerage account that is also fine but it doesn't really change your portfolio and risk profile much, while exposing you to some tax liability and the associated job change risks, and it's hard to come out ahead as compared to simply only contributing to get your match and then putting aside more money to invest yourself. This is what your model would be for.
Again, it is certainly possible that your 401(k) choices are so horrendous that this is a great idea no matter what other reservations I state. Like, imagine a 401(k) that only offers municipal bond funds. Then ok, go ahead and use 401(k) loans to diversify. But, I think it's pretty rare that there is literally nothing to choose from that will at least come close to mirroring VTI or VOO, etc.
