Question Regarding Retirement, etc.
Rampage
Posts: 9,450 ✭✭✭✭✭
Hi All,
This is just hypothetical.
Say a 28-year old person is trying to be cautious and start saving early for retirment. Say he wants to retire at the age of 55 or 60.
1) He invest 15% of his pay in a 401K plan, but one those that does not lose money (rate of return about 5 to 7 percent per year), However, when the economy is in better conditions, he rolls the money over the stock funds which have higher return rates.
2) Say this same person also has a somewhat large coin collection in which most of the values are well over what he paid for them initially. The current coin market would bring him a nice chunck of chage if he sold it. Currently, he invests about 5% of pay in coins.
Here is the question, should he take advantage of the current market and sell to help build his portfolio and invest it in something like bonds? Or, should he keep his coins till he gets closer to retirement? Coin markets fluctuate right? SO, there will likely be several highs and lows within the next 30 years, right?
Any advice you can give in this hypothetical situation would be appreciated.
Cheers, Richard.
This is just hypothetical.
Say a 28-year old person is trying to be cautious and start saving early for retirment. Say he wants to retire at the age of 55 or 60.
1) He invest 15% of his pay in a 401K plan, but one those that does not lose money (rate of return about 5 to 7 percent per year), However, when the economy is in better conditions, he rolls the money over the stock funds which have higher return rates.
2) Say this same person also has a somewhat large coin collection in which most of the values are well over what he paid for them initially. The current coin market would bring him a nice chunck of chage if he sold it. Currently, he invests about 5% of pay in coins.
Here is the question, should he take advantage of the current market and sell to help build his portfolio and invest it in something like bonds? Or, should he keep his coins till he gets closer to retirement? Coin markets fluctuate right? SO, there will likely be several highs and lows within the next 30 years, right?
Any advice you can give in this hypothetical situation would be appreciated.
Cheers, Richard.
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Comments
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Even if you sold coins as a side business and kept your full time job and made a profit of $20,000 a year from the coins -- all of that could go into the SEP account towards retirement. Much better than a 401K.
Michael
Another way of looking at the same thing also starts with a budget. Some people can be happy while saving a large percentage of their income and spending very little. Other people can't be happy unless they spend themselves into the poor house. Most people are somewhere in the middle. So they would need to budget some money for entertainment and some for hobbies. Is the %5 spent on coins within your hobby budget? If not perhaps (hypothetically speaking
Some people think buying coins is an investment. If you think this way it is often suggested that no more than %5 of savings be put into hard assets like collectables and commodities. It should be easy to calculate your net worth and the percentage that is coins and adjust accordingly.
As an aside reducing one's spending helps in several ways. First you can save more. Second as your spending is lower you need less total savings to retire. Third I always say a dollar saved is a dollar thirty eight earned. That is because the dollar you earn gets taxed by the feds, perhaps the state and perhaps by a local sales tax. The 38 is a number I pulled out of my hat, your taxes may be very different than mine.
<< <i>Ok, with a 401k plan, you can only put $3,000 into it each year... just so you know
Actually, the IRS limit into the plan that I invest into is $10,000 per year. It is not really a 401K, but it is similar.
<< <i>That is because the dollar you earn gets taxed by the feds, perhaps the state and perhaps by a local sales tax >>
This is why you need to start a business. Many many many more write offs allowed. Gas, cell phone, entertainment, car lease ect. Let Uncle Sam subsidize your business expenses 38%.
Incorporating might be a bit expensive, but over the long run you will make it all back in tax breaks.
Michael
Very good posts-although Michael's posts seems to be more difficult to do
I actually collect coins for the love of the hobby. However, I have several coins that would bring in far more than what I paid for them.
I still need to buy a house, too. Although some people say right now is not a good time to buy a house. But, isn't that better than throwing away rent money every month when you can probably get a mortgage at about the same or a little more than rent? Of course then you have to consider maintenance, etc., which does not always come with rent as it does with owning.
Who wants to invest in stocks for 20 years up, then watch them go down for 15 years, then finally go back for another 20 years? Your money needs to be moved around based on what various markets are doing.
Anything you can do to put the money away and keep taxes deferred is optimal.
The formula for retirement is changing. What worked for the past 20 years WILL NOT WORK FOR THE NEXT 20. Be very leery of all the Crapper and Krudlowe's who say different. No one ever got rich following the herd....and the herd is still stuck on growth stocks for the long term cuz it keeps paying the bills for CNBC analysts and stock brokers.
PS: what "safe" investment are you aware of that pays 5-7% guaranteed in times like this?? And don't forget that inflation at 5% or higher is eating most of this away any ways.
roadrunner
the "all or nothing" approach seldom has the highest "expected rate of return" (sometimes, you do "exactly the right thing" but other times, "exactly the wrong thing". On the other hand a "diversified portfolio" increases the chances that some asset classes will outperform, others will underperform, and in the long run, the investor will do just fine.
In the "hypothetical" situation you describe, rampage, why does the person have to sell ALL their coins??
sell some, reallocate the money, keep some favorites, for they are likely to have nice long term performance, too, and give "intangible" benefits of ownership that paper assets do not.
Liberty: Parent of Science & Industry
What are the odds that you could be able to replace them at a lower price in the future?
Will they hold their higher value in the future?
Do you really NEED to sell them?
If you can't reinvest the money either tax-free [as in a Roth IRA where yu pay taxes now but future gains are not taxed] or tax-deferred, then what is the point of selling.
Keep in mind that it is not guaranteed that any tax-deferred investment option will remain that way in the future. I bet there are lots of boys in D.C. conjuring up ways to get their hands on all that tax-deferred revenue that resides in 401k plans. After all when the market tanked a couple years ago and smoe folks bailed at a loss Unka Sugar took it in the shorts too!
I did not mean sell ALL. I meant sell the ones that were worth ten-fold (or more) what was paid for them.
<< <i>Ok, with a 401k plan, you can only put $3,000 into it each year... just so you know >>
This is not true. An IRA is the one you can't CONTRIBUTE more than $3k to. A 401k is set up so that the EMPLOYEE can contribute up to about $12K (they change this every year so I'm not sure).
Frattlaw has a good point also. With a business you CAN start your own 401k (I've done it) or SEP or whatever. It THOSE situations you can put as much as $40K per year into the account. I realize a lot of people think otherwise but it is true.
Anyway, more to the point here. I do NOT believe coins should be used as an investment. Do it for the enjoyment only. If you like your coins you WILL regret selling them to do this...trust me on this one. Just take whatever you feel from your present income and contribute to your IRA or 401k or whatever. Being 28 years old you have plenty of time. As far as investments are concerned listen to Roadrunners post.
jom
So you're considering selling your "winners", and keeping your "losers"?
Instead, think about selling your losers (coins that aren't going up), and buying more winners!
or do you think the winners are overvalued now and ready for a fall? "lock in the profits before they crash" type of thing?
Liberty: Parent of Science & Industry
<< <i>Even if you sold coins as a side business and kept your full time job and made a profit of $20,000 a year from the coins -- all of that could go into the SEP account towards retirement. Much better than a 401K. >>
Our opinions differ here. A 401k is much better in that you can BORROW from it if you wish AND through a technical calculation I don't wish to go into (
jom
that 3 k number is an IRA,a Roth IRA is also 3 k,you can have botb.
i think a 401 k is 20% of your wages and many companies match those funds.
younger people should look at some funds with higher returns that are more volatile,older folks should limit the risk and go lower returns
houses are hot now,maybe too hot,but if you one that fills your needs and the payment wont kill ya do it.
but,just because you can afford a 250 k home dont mean a 150 k home wont do ya and have less downside in a bear market.
<< <i>This is not true. An IRA is the one you can't CONTRIBUTE more than $3k to. A 401k is set up so that the EMPLOYEE can contribute up to about $12K (they change this every year so I'm not sure). >>
$13,000 in 2004, $14,000 in 2005.
IRAs also go up next year, to $4,000.
the interest goe's to YOU !
A profitable side coin business making $20,000 a year is not that hard. I'm not talking about having thousands tied up in coins either. You can obviously pick nice coins -- you noted some in your collection that have increased 10x. If you can do $400 week profit on Ebay you could be there easily. Think about what $20,000 a year compounds to in 32 years?????? Can we say $1,500,000.00 plus. Not bad for a part time job.
Sell some coins and invest that money in yourself and your own abilities. I rather gamble on my own business than someone else to pick stocks/bonds for me.
Run it from your home when you do buy a house -- you'll get even a better write off.
I've been in business for myself for 11 months -- 10 of it in the black. I'm already looking to purchase -- not rent -- office space.
I will never go back and work for someone else. There are way too many benefits to dismiss my propostion so quickly. Talk to people who are far more experience than I. Get a CPA and a CFP. Those two types of professionals have helped me immensely.
Michael
I would put in into a house, personally. Yes, you may pay a bit more for a house now, but you can't beat the interest rates. If you wait until later when the interest rates are high, you probably won't be able to afford as large of a house. I've always felt that owning is better than renting. This goes for a car too. Never lease. The payments never end and over-mileage can kill you. Once the house is paid off, you can put a lot more money into savings/retirement/coins.
That being said, I'd sell your collection, get a nice downpayment on a house, then look to buy back nicer coins a few years down the road, if/when the market softens just a bit.
It's a lot of work but at your age you could be sitting really well in the future.
Most think you have to be rich to do this but that's not true.
It's all about cash flow. A few properties can make the payment on your own home.
This is starting your own business and goes along with FrattLaw's comments.
The tax advantages are really something to consider.
Where the hell is Cucamonga ?
We are at a 40 year low in interest rates, that is why it is the time to buy now. Anyone who is renting and can buy is giving money away. The cost to get in can be as little as 3% down (FHA), so the barrier to entry is low. Check out how much you can borrow at 6% (the current rate) and see how that plays out in your buying / rental market.
Good Luck!
PS, Coins are a hobby and not an investment. Take care of your investing first and leave the coin money as discretionary spending, not an investment that has to have a return
Rancho Cucamonga is about 50 miles east of Los Angeles and 12 miles west of San Bernardino. For those who remember or who may have heard it, Jack Benny used to imitate a train conductor calling out stop names, one of which was "CUCAMONGA". Of note for Cucamonga is the fact that the first electric light west of the Mississipi was installed here by the Chaffey brothers, and there are a few very rare and expensive National Bank Notes from Cucamonga.
"Instead, think about selling your losers"
I like that idea. Probably no better time.
I would NOT be a buyer of bonds right now ... as interest rates rise, bond prices fall ... maybe next year will be a better time for those.
“We are only their care-takers,” he posed, “if we take good care of them, then centuries from now they may still be here … ”
Todd - BHNC #242
Rancho Cucamonga
Alta Loma
San Bernardino
What the hell r u talking about ?
I appreciate everyone's time.
Regards, Richard.
If the hypothetical investor here is at 5% in coins and is young, I'd say hold the coins for the long term and don't worry about the immediate profits, especially if they are classic coins.
OTOH, if the investor is more like 20%-30% into coins then I would say take some profits and diversify.