Financial People, Halp

[Dr. Jones]

Just to clarify (and speak for him) PKM is using stock options as a teaching example and not as a viable retirement strategy. Invest in options and you will get your ******* cleaned out with a large wooden spoon, cooked with your entrails and fed to you.

His controllable real estate use of options is pretty bad ***.

You said it so much more eloquently. Yes.

 

[b_line]

Hant, one thing that has not been mentioned in this thread is about the ability with ROTH to use it as a savings account. You can withdraw the money you put in (not any of the gains though) with no penalty. Like carbon said, this is capped at $5500/year and you can not contribute when you make a lot of money, so do it before you take over your dad's farm.

 

[b_line]

I have been researching this investment strategy since the last thread about it. It's incredibly interesting. A good way to start with a broker is to find one that supports non traditional investments in your Roth. The other thing is that you can start a ROTH and move it to a new broker with no penalty, so if you find a better broker later, no sweat.

Generally, bigger investment firma like fidelity, Edward jones, etc don't support call options. My father in law has worked for fidelity for 25 years as a financial planner, and he was pretty shocked when I asked him about this investment strategy. He thought for sure there would be a tax penalty on the growth. Then he looked up regulations and wsj articles on some similar situations and was really intrigued.

One other thing I found out is that your ROTH can actually own real estate. So if you build up the account enough, you can purchase rental properties and not pay capital gains if and when you sell them.

 

[franklin]

One other thing I found out is that your ROTH can actually own real estate. So if you build up the account enough, you can purchase rental properties and not pay capital gains if and when you sell them.

That's one of the greatest advantages of a ROTH IMO. The pre-tax, post-tax debate is all speculation on your tax rate now vs later (it might very well be very much higher later after your kids move on and you lose deductions). Mathematically, with tax rates being equal, you can never benefit from paying the tax now or later. You'll end up with the exact same amount.

 

[Dr. Jones]

That's one of the greatest advantages of a ROTH IMO. The pre-tax, post-tax debate is all speculation on your tax rate now vs later (it might very well be very much higher later after your kids move on and you lose deductions). Mathematically, with tax rates being equal, you can never benefit from paying the tax now or later. You'll end up with the exact same amount.

This is very true... But hedgers (me) will argue that having the money in my hands, to invest for my benefit, is a worthwhile tax/income strategy vs. simply handing the taxable portion over to the government at the point it's earned.

 

[moevillini]

I have been researching this investment strategy since the last thread about it. It's incredibly interesting. A good way to start with a broker is to find one that supports non traditional investments in your Roth. The other thing is that you can start a ROTH and move it to a new broker with no penalty, so if you find a better broker later, no sweat.

Generally, bigger investment firma like fidelity, Edward jones, etc don't support call options. My father in law has worked for fidelity for 25 years as a financial planner, and he was pretty shocked when I asked him about this investment strategy. He thought for sure there would be a tax penalty on the growth. Then he looked up regulations and wsj articles on some similar situations and was really intrigued.

One other thing I found out is that your ROTH can actually own real estate. So if you build up the account enough, you can purchase rental properties and not pay capital gains if and when you sell them.

You can generally do it through a E-trade or Scott-trade account or something similar, but typically they require you to have a minimum of something like $25,000 in the account before they'll authorize your account to trade
options.

As far as owning real estate in an IRA, seems to me it would have to be a REIT or some other similar investment instrument. I'm not sure you could buy property on your own and put it into an IRA. I'd be curious to know who that would be done.

edit: I looked it up, and yes you can. But the rules and restrictions make it a poor IRA investment for most situations. You can't deduct any of your expenses, you can't do any of the maintenance/management work yourself or have a member of your family do it, and all sorts of others.
https://www.kiplinger.com/article/real-estate/T032-C000-S002-an-ira-is-a-poor-shelter-for-real-estate.html

 

[VINYLONE]

Here's my advice, invest into low-cost (low expense ratio) index funds. It's the fees that end up killing you. DON'T try to play the market. 90% of ivy-league educated portfolio managers that spend every waking minute devoted to it can't beat the Dow when fees are counted, why would you be able to? Now watch this video before reading on, https://www.youtube.com/watch?v=SwkjqGd8NC4. No seriously, watch it. You will finally understand what you need to do next.

How you invest toward retirement is one of the most important decisions you will ever make. Do it right. Invest all the way up to what your company is willing to match in your 401k. Any additional money should go toward a Roth IRA. Again, invest in low-cost index funds. If you happen to be able to max your IRA ($5500 for 2016) then lucky you and you're well on your way. Put the rest of the money you devote to retirement into the unmatched portion of your 401k. If you are fortunate enough to be able to max your 401k then my suggestion would be to open a HSA account if your company offers it. You can invest up to $3350 this year. Basically, any of the money you use from the HSA account can be used for healthcare in a high-deductible plan, tax-free. But here's the awesome part; you get to invest it and when you turn 65, you can use the money for non-medical reasons. Basically, it's another IRA. I recommend using a laxy portfolio strategy as described by bogleheads: https://www.bogleheads.org/wiki/Lazy_portfolios

Finally, tax-efficient fund placement is really important and everybody overlooks it. People lose on average ~2% annually by simply putting their funds in the wrong spots. You should always put your international index funds (because you are smart and you index) in your taxable brokerage account. At the end of the year, you will get a foreign tax credit. Similarly, always put your bonds in your 401k. Domestic stocks can typically go anywhere but I keep them in my 401k. Now take some time and read this because this is one of the most important things you will ever do for yourself and your family: https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Finally, live within your means. Retiring comfortably is well within your grasp if you can put away 15-20% of your money annually. Read some Mr. Money Mustache https://www.mrmoneymustache.com/ dude will get you MOTIVATED! Also, don't hire someone to manage your investments. They typically charge around 1% of your total investments annually. Not 1% on your gains, 1% on your whole damn account! That's whether it goes up or down, he gets it. And if you do the math, you're likely to withdraw 4% of your savings annually in retirement. That means, your financial advisor just quietly took 1/4th of your retirement income. Not cool. This investment stuff is easy, just read up on it and you'll be better than fine if you follow through. Hit me up if you have any questions!

Wow. What a fantastic post. Probably the best advice in this thread. I'm sorry PKM, telling OP to open a brokerage account and start trading options is kind of irresponsible advice especially with how tehcnical options trading is. I have no doubt you know what you're doing in that respect as well as in the RE world but OP is def a neophyte.

C13, I think you touched on some very important aspects with your post, especially in regards to taxes as well as the fees associated with FA's in addition to their historical lack of success when it comes to beating the market. I do have some questions but let me give OP some stuff to think about.

OP, I think if your job offers a 401k with some sort of contribution match, you NEED to take that because if not, you're giving away money for free. If they don't match, I don't see there being a benefit to have a 401K over an IRA. Folks can correct me if I'm wrong. Those that advised you to put your money into a money market are completely out of touch with the fiscal environment. If you're looking at a "set it and forget it" type approach, C13's reco of an index fund is a solid one. I'd look into Vanguard Funds, as their funds have the lowest fees in the industry but don't take my word for it, do your own research. You might also want to look into their Target retirement funds which, after you choose a retirement year in the future, will allocate from agressive to conservative as you get closer to your retirement year. Currently, the TRF that I have is up 12 percent...even with this last "correction" we had earlier in the year.

C13, what say you regarding DRIPS? Or investing in stocks that have high dividend yield of the aristocrat/ champion variety? My 3 DRIPS that I invest in are ALL up and continue to pay a solid dividend. Also, what is opinion in minimizing fiscal pain during bottom out in the market like we had in 2008? I'm of the opinion, that if you owned stock in company that paid a nice dividend, and you were getting a nice return via divident, it would really matter if the stock price dropped as the dividend is what mattered. Speak on it. Def interested in what you have to say.

Im also familiar with the bogleheads material as Mr. Bogle is Vanguard himself.

 

[moevillini]

well if you have a dividend paying stock and the stock price drops, the yield goes up. That's automatic and it's a bit of a built in hedge right there.

Dividend reinvestment is good too, if you're generally a fan of the stock - when the price drops, your reinvested dividend "buys" more

 

[VINYLONE]

well if you have a dividend paying stock and the stock price drops, the yield goes up. That's automatic and it's a bit of a built in hedge right there.

Dividend reinvestment is good too, if you're generally a fan of the stock - when the price drops, your reinvested dividend "buys" more

And if you're enrolled in a DRIP, it's the only way, that I know of, where you are able to buy fractional shares. Organized record keeping is paramount when investing in DRIPS.