Using 401K loans to buy cards?

gameusedhoop · May 11, 2009 8:25AM

Has anyone here used some 401K money to buy and flip cards for profit?

Most plans let you borrow up to 50% of your balance, pay it back weekly over a period of years, with no penalty for pre-paying.

I am tired of watching the balance drop, just when you think it has bottomed out it hits another bump. About 6 months ago I stopped the bleeding by moving $$ to fixed rate investments. Only getting 1-2% interest, but it beats losing principle on a daily basis.

Assuming the buyer has a strong knowledge of the card market and isn't looking to crack modern wax for hits. Anyone here have any insight on the pros-cons of using this money? The loan rate is 3.25%, you pay yourself the interest, not a bank, credit card company etc.

I was thinking about using 10K in liquid funds, to play opportunist and pick up some bargains that are currently presenting themselves with the poor economy and job market.

Is any of the reasoning sound? Or is it a combination of no sleep, antihistimines and caffeine that is making me think this way?

WinPitcher · May 11, 2009 8:29AM

Nope. My 401 k is now a 201k

Steve

justmichael · May 11, 2009 8:30AM

Plain and simple BAD IDEA.If you can't afford it then don't buy it.Credit card and loan debt are a very bad idea when it comes to your hobby.

Allen · May 11, 2009 8:33AM

Bad idea.

GoDodgersFan · May 11, 2009 8:35AM

BAD idea. For the rare collector that truly knows the hobby, this might be a decent opportunity. This is less
than 2% of the collecting universe.

$10,000 is no small change and I strongly recommend that you just leave the money in the bank for now.

Just my 2 cents.

Anyway, I wish you the best. Personally, I collect for fun and have done well with what I buy.

BobbyVCP · May 11, 2009 8:35AM

Just buy PSA 8's commons in 1958/59 Topps on eBay for $20-40 each and then put them in Goodwins next auction and you will get a 10X return.

storm888 · May 11, 2009 8:43AM

"...Is any of the reasoning sound? ..."

///////////////////////////////////

Not really.

gemint · May 11, 2009 9:20AM

I thought you could only borrow from 401K without penalty if you're using it to purchase a house? In any event, bad idea. If you're worried about volatility, move your money to bonds. After all, what's more volatile than the sportscard market where a given card can sell for 50% book one week and 200% the next?

Edited to add that I missed where you had already moved your money to safe havens. Unless you found an 80 year old grandma who's sitting on a box of '52 Topps packs, I wouldn't recommend risking your retirement in the card market.

Overrated · May 11, 2009 9:24AM

Buy 1oz gold coins! Amercian Eagles.

perkdog · May 11, 2009 9:28AM

No!!

PoppaJ · May 11, 2009 9:46AM

<< Plain and simple BAD IDEA.If you can't afford it then don't buy it.Credit card and loan debt are a very bad idea when it comes to your hobby. >>

///////////////////////////////

Well said!

PoppaJ

Estil · May 11, 2009 9:52AM

ALL the major financial people worth their weight in salt would strongly advise against touching your 401K early under almost ANY circumstances.

CrimsonTider · May 11, 2009 9:54AM

Bad idea on two accounts. Never borrow against your 401k, your repaying your loan back with post tax money. The main purpose of a 401k is to avoid taxation til a later time when your in a lower tax bracket.

Moving your principal to fixed income, basically you have jst bought high and sold low. The market is low at this time, this is a "Buy" market. You took the ride down, don't miss the ride up.

RipublicaninMass · May 11, 2009 10:00AM

I cashed mine out right before the collapse. Sure I paid a small penalty, but I am light years ahead of the market today, and young enough to put money into other avenues and not HAVE to retire for a long time. I have been buying investment properties and cards and have yielded large profits on both. Right now cash is king, but your age may determine what you really should do. I am a risk taker, and always will be, I just ended up on the right side this time. I agree if you have huge losses already, you might want to stick around until it heads back up, fortunately I was out about 2.5 years ago.

Nascar360 · May 11, 2009 10:01AM

I am not sure if it's still true but you use to have to pay it back if you lost your job. You had to repay the balance back or take it as income (major taxes). It’s just not a good idea. Now if it was a ROTH that's a different story.

alifaxwa2 · May 11, 2009 10:11AM

<< 
Moving your principal to fixed income, basically you have jst bought high and sold low. The market is low at this time, this is a "Buy" market. You took the ride down, don't miss the ride up. >>

This right here is the key. Assuming your at least 5 years from retiring, you should be putting MORE money into it. By taking your money out, that money will miss the ride back up.

Tabe · May 11, 2009 10:52AM

To address a couple points:

1) You can use 401k loans for other purposes besides home purchases. Those "other purposes" depend on your company and loan administrators. You also will generally not have to prove what you are using the money for. Essentially, you can use it for anything you want.

2) Depending on the company & loan administrator, you can prepay the loan without penalty. HOWEVER, that may come in the form of paying back the entire balance at once. You probably won't be able to just throw in a couple hundred extra when you have it.

3) If you lose your job, you'll have to repay the entire balance.

You'll have to make a significant profit on your purchases just to break even on this deal. Besides the fact you're repaying with post-tax income, you'll also have to pay yourself interest. So, unless you're making 50% or more profit on every deal, you are wasting your time and probably losing money.

Tabe

IchiroDeported · May 11, 2009 12:22PM

401K is a nice scam.

Mintacular · May 11, 2009 12:24PM

You should buy a bunch of Sid Crosby Autos (maybe one or two Ovechkins) but mostly Crosby's...

NickM · May 11, 2009 12:33PM

The only way this could make sense is if you were just using it as the source of capital for a quick break and flip (i.e., buying a large auction lot that you knew could be rapidly be sold in many pieces at a significant profit). Even then, you have taxes on the gains, and they may have other tax consequences (such as bumping your bracket up).
That's an investment in cards. Figuring something will go up in the future is speculating.
Unfortunately for anyone planning to do this, there are enough dealers with ready capital that few such lots go at a substantial discount to break value.

Nick

DrJ · May 11, 2009 12:34PM

<< ALL the major financial people worth their weight in salt would strongly advise against touching your 401K early under almost ANY circumstances. >>

These are the same financial people who left their money and those who they were managing in stocks for a nice 40-50% ride down the slope. The stock market is a fool's game, with an unexhaustable supply of fools lining up at every payday (myself included).

In all honesty, if you know cards there is a very good chance you can make money by flipping cards/collectibles. Most people invest in companies and industries where they know little to nothing about the fundamentals or why/how money is made. If you know the fundamentals of cards, you are one step ahead of most stock investors and financial planners.

JackWESQ · May 11, 2009 12:39PM

Turning a profit by flipping cards is not an easy thing to do. I wish it were, but it is not. A good example ended tonight.

Back on March 23, 2008, buyer trevnbre purchased a 2001 Upper Deck Player's Ink Tiger Woods BGS 9.5 for $1,414.00.

Tonight, trevnbre sold the same card for $1,555.55.

Taking into consideration eBay fees of $44.79 and [likely] Paypal fees of $45.41, he made a profit of $51.35. A profit, yes. But a ~$50.00 profit on a ~$1,400.00 investment? Mmmm ...

That said, I agree with GoDodgersFan that for the truly knowledgeable collector, turning a decent profit may be possible. If you think that is you, I wish you the best of luck.

/s/ JackWESQ

divecchia · May 11, 2009 12:47PM

I don't think it is a good idea for many of the reasons already mentioned.

Donato

schr1st · May 11, 2009 12:47PM

At this point, since you've already lost the value in your 401K, it probably isn't a good idea. The idea itself is a pretty good one, one that I've done successfully multiple times, but since you've already lost most of the value of your 401K, it's probably better to wait a couple of years to do it.

akuracy503 · May 11, 2009 2:57PM

Like many have said let your 401k recover, if you take away from it now you've truly lost your potential 'investment' for the long run.

There is no way in hell you'd ultimately gain more money from cards unless you are talking six figure deals.
I look at cards as almost like an alternative to saving, if you get a good buy on a vintage item you'll most likely get the money back anytime you want.

Pete14Rose · May 11, 2009 6:11PM

lol If people are using their 401k's to buy baseball cards....that's pretty sad. Funny, but sad.

CDsNuts · May 11, 2009 6:19PM

Great idea. Fire away. Modern PSA 10s are especially sound.

DrJ · May 11, 2009 7:37PM

<< Like many have said let your 401k recover, if you take away from it now you've truly lost your potential 'investment' for the long run.

There is no way in hell you'd ultimately gain more money from cards unless you are talking six figure deals.
I look at cards as almost like an alternative to saving, if you get a good buy on a vintage item you'll most likely get the money back anytime you want. >>

He may need to wait 5 to 10 years for a recover to post crash levels. Kind of a long time to get back to even.

cardbender · May 11, 2009 11:20PM

It can be done, if you know what you're doing. You really have to know the market of what cards you're dealing in and know that ebay auctions are like a roller coaster at times.
One week a card sells for $50, the next week it sells for $30 in the same grade.

You could do it with an ebay store and working on a reasonable markup. There's plenty of buying opportunities out there if you study ebay enough, use VCP, and have some cash to buy deals with.

I would stick with graded vintage cards too. It's not as voliatile (sp) as the modern card market, so you can't get hurt as badly.

Expect to lose or break even on a few cards here and there, but generally you should be able to make 15-20% on every deal and maybe more, once you find your niche. Make that percentage enough times over and over and you'll be doubling your money probably within a year.

That would surely beat the stock market.

Good luck if you give it a try Steve.

Jackailius · May 12, 2009 2:20AM

I may be in the minority, here and anywhere esle, but to be honest I believe that right now is a great time to put money into my 401K and my money markets. Both are well managed by companies I trust. By well managed I'm not saying my investments have "earned" anything, I mean that my managers have alligned me well to reap the windfall when the stock market goes back up. I am putting as much in my 401K as possible right now because we may never have the opportunity to buy shares this cheaply again. This said I'm not close to retirement- probably 25 to 30 years out but honestly the only way you loose money is to sell. I'm just not a fan of buying high and selling low. Just my .02.

To the real question of the post, I wouldn't take a loan against my 401K unless I were able to get one heck of a honey of a deal and I were comfortable enough with eying a card up for grade and value, which I am not. So I wouldn't take the loan for this reason.

Thanks,
josh

fkw · May 12, 2009 7:13AM

Late 1990s-2003 yes, ............ now NO WAY!!

I did something similar about 10 years ago and doubled my worth in no time. But if you collect modern (post1948) cards there is no way you can buy and flip for a big profit.

The way I did it is I bough most cards (rarer 1880-1930s "type cards", or large groups) on eBay in its earlier years (1998-2002) when you could still find many cards (in wrong category, no photos, bad descriptions) and easily flip for 1,000%-10,000% profit.

But I also knew exactly what I was buying.

revmoran · May 12, 2009 8:56AM

I've bought a few things and had to borrow to pay, but these were items I really wanted and enjoy having - I take comfort in the thought that they won't lose value because they're all pre-war football items - well, except for a program from the Dedication of the Hall of Fame in Caton signed by almost all members the first class inducted and their presenters. But the value is in the enjoyment - it's hard to measure like a rate of return, but I sure won't feel cheated or that I've lost out even if in the end they sell for a few dollars less -

storm888 · May 12, 2009 9:12AM

Card market can make you some money.

Stock market can make you very rich.

....

Many traders that I know had their best year EVER, in 2008.

2009 is shaping up to be as good or better.

Estil · May 13, 2009 7:55AM

<< 

<< Like many have said let your 401k recover, if you take away from it now you've truly lost your potential 'investment' for the long run.

There is no way in hell you'd ultimately gain more money from cards unless you are talking six figure deals.
I look at cards as almost like an alternative to saving, if you get a good buy on a vintage item you'll most likely get the money back anytime you want. >>

He may need to wait 5 to 10 years for a recover to post crash levels. Kind of a long time to get back to even. >>

I think Suze Orman mentioned that 10 year rule also. Basically if you're still more than 10 years away from retirement, wait out any recessions and let the market recover (we all know it will at some point). Only when you're less than 10 years away should you even consider cashing in.

Speaking of which, I'm nearly 30 years old already; I need to get started on that sort of thing myself! With stocks and such at the bottom of the barrel now so to speak, I would think this would be a golden opprotunity to get started; you know, buy low sell high?

As for sports card investment, I still maintain that the only really good investment opprounity out there is unopened material (in particular pre 1980). Because as people on here and elsewhere do those pack busting sessions and such, you know the supply unopened packs/boxes (even junk wax to a small extent) will only get smaller and smaller with time. Conversely, the supply of PSA graded cards can only increase as more people "try their luck" sending them in to get high grades.

larryallen73 · May 13, 2009 9:03AM

Flipping cards is NOT just an investment. It's a BUSINESS. It takes substantial time to track cards, buy inventory, list them on Ebay, package to mail, etc.... Plus you have risks like cards getting lost in the mail, bad buyers who scam you and of course auctions that don't sell for as much as they "should." I am not saying buying cards is a bad idea but I do not think it's analogous to investing in mutual funds. They are two totally separate things. Selling cards is a business if you are looking at making money flipping. I, personally, would stick with stocks, mutual funds and real estate for investments and, for me, I will keep being a lawyer as my business. If you do not make a lot per hour then maybe an at-home baseball card business is a good idea!? I enjoy buying and selling cards as a hobby but I make money being a lawyer! Just my two cents. Good luck to you.

Using 401K loans to buy cards?

Comments