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Non traditional investing. Should I?

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  • #46
    Lol, ok... Well Im gonna throw my hat in here and suggest peer lending. I am making around 11% return via lending club and around 15% at Prosper. (although most dont do this well) Takes a little time to setup automated investing tools but after that, its set and (mostly) forget. The hard part is getting a large amount of funds invested, that takes time.

    Oh and I should also add that both accounts are not 100% seasoned so those numbers will drop a bit, but Im pretty happy with the returns. Also consider that gains are taxed as regular income, unless you utilize a Roth account, but then contributions are limited.
    Last edited by Spiffster; 05-06-2016, 07:52 AM.

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    • #47
      Originally posted by Spiffster View Post
      Lol, ok... Well Im gonna throw my hat in here and suggest peer lending. I am making around 11% return via lending club and around 15% at Prosper. (although most dont do this well) Takes a little time to setup automated investing tools but after that, its set and (mostly) forget. The hard part is getting a large amount of funds invested, that takes time.

      Oh and I should also add that both accounts are not 100% seasoned so those numbers will drop a bit, but Im pretty happy with the returns. Also consider that gains are taxed as regular income, unless you utilize a Roth account, but then contributions are limited.
      Good stuff.

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      • #48
        I made some calculations on somebody putting away $500 after tax money into an investment account vs $833 (same $500 pre tax, assuming a 40% marginal tax rate) for the past 20 years (we are talking retirement after all).

        The end resulting account values (if invested into S&P 500 funds):

        401k account = $426846
        taxable account = $233635

        For example, now that you are retired, if you take out, say, $150k a year to live on, then your marginal rate is about 30%, you'd be able for get $100k MORE net into your pocket from the 401k account. That's pretty nice considering you've put into both the same effective $.

        (Above results based on S&P calculator using real prices)

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        • #49
          All above calculations based on current tax rates; i.e. good at least this year.

          S&P 500 return based on actual historical data and good forever.

          The $100k difference is assuming all income taxed at marginal tax rate of 30% (with another $150k of income from somewhere else like rental, interests, dividends, etc.) Now, if the $150k is your only income, then the difference is even higher (i.e. 401k is even better).

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          • #50
            Originally posted by sv2007 View Post
            I made some calculations on somebody putting away $500 after tax money into an investment account vs $833 (same $500 pre tax, assuming a 40% marginal tax rate) for the past 20 years (we are talking retirement after all).

            The end resulting account values (if invested into S&P 500 funds):

            401k account = $426846
            taxable account = $233635

            For example, now that you are retired, if you take out, say, $150k a year to live on, then your marginal rate is about 30%, you'd be able for get $100k MORE net into your pocket from the 401k account. That's pretty nice considering you've put into both the same effective $.

            (Above results based on S&P calculator using real prices)
            All good, except with the 401K, you have about a tenth of 1 percent of the investment choices that you do outside a 401K.

            As long as you're good with paltry returns with a dozen or two middling mutual funds from which to choose, then the 401K is the perfect choice.

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            • #51
              Originally posted by TexasHusker View Post
              All good, except with the 401K, you have about a tenth of 1 percent of the investment choices that you do outside a 401K.

              As long as you're good with paltry returns with a dozen or two middling mutual funds from which to choose, then the 401K is the perfect choice.
              all 401ks that I've seen has an S&P500 fund, which many think it works well.


              So for those people, there's not much difference in 401k vs outside.

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              • #52
                Tom, I found a new radical way to invest into real estates you may find interesting.

                Check out Peerstreet. Money Mustache introduced this website just recently and I see how it's actually really decent.

                Basically you are crowdfunding a bridge loan for house flippers. Most specialize in foreclosed houses that doesn't meet the requirements for conventional loans. All houses on this website has at least a LTV of 25%.

                You should expect between a 6-10% return depending on the houses' risk(LTV). So far they have 0 defaults since 2013(when they started) and the term of the loans are 12 months or shorter(depending on when the flipper sales the house. Understand that no one is willing to default on a house loan when they have put 25% down on a house. If there's a default, then you get a percentage of your money back depending on the foreclosure sale. Since these houses are mostly foreclosures to begin with, it shouldn't lose too much value when it's foreclosed again.

                Sounds less riskier than p2p lending to dead beats to me...also not to mention how long it takes to fully diversify while diversifying with Peerstreet is recommended but not as dangerous as lendingclub if you don't.

                The caveat is that you need to be an accredited investor, meaning you need a nw of 1million OR make 300k/year jointly or 200k/year single. This rule however may go away in the future(already talks about some states doing away with this rule this May).

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                • #53
                  Originally posted by sv2007 View Post
                  all 401ks that I've seen has an S&P500 fund, which many think it works well.


                  So for those people, there's not much difference in 401k vs outside.
                  If single digit annual returns are something that "works well" for you, then the 401K is a no-brainer.

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                  • #54
                    Originally posted by Singuy View Post
                    Tom, I found a new radical way to invest into real estates you may find interesting.

                    Check out Peerstreet. Money Mustache introduced this website just recently and I see how it's actually really decent.

                    Basically you are crowdfunding a bridge loan for house flippers. Most specialize in foreclosed houses that doesn't meet the requirements for conventional loans. All houses on this website has at least a LTV of 25%.

                    You should expect between a 6-10% return depending on the houses' risk(LTV). So far they have 0 defaults since 2013(when they started) and the term of the loans are 12 months or shorter(depending on when the flipper sales the house. Understand that no one is willing to default on a house loan when they have put 25% down on a house. If there's a default, then you get a percentage of your money back depending on the foreclosure sale. Since these houses are mostly foreclosures to begin with, it shouldn't lose too much value when it's foreclosed again.

                    Sounds less riskier than p2p lending to dead beats to me...also not to mention how long it takes to fully diversify while diversifying with Peerstreet is recommended but not as dangerous as lendingclub if you don't.

                    The caveat is that you need to be an accredited investor, meaning you need a nw of 1million OR make 300k/year jointly or 200k/year single. This rule however may go away in the future(already talks about some states doing away with this rule this May).
                    I will look into this. The returns are moderately interesting but it would be diversification. Lately, I've just been looking at REITs.

                    Tom

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                    • #55
                      Originally posted by TexasHusker View Post
                      If single digit annual returns are something that "works well" for you, then the 401K is a no-brainer.
                      I will always recommend to anyone that asks that they should contribute to their 401k up to the employer match. For me, I make an instant 100% return on every dollar I contribute to my 401k up to 5% of my income. That's hardly single digit. Anything above the employer match is up for discussion. I concede that you are getting better returns on your RE investments and are diversified outside the equity markets. That appeals to me. Maybe the answer comes down to disneysteve's common recommendation which is that it doesn't have to be all or nothing. Why not a combination of equities and RE (or other non-traditional investments)?

                      Tom

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                      • #56
                        Originally posted by TexasHusker View Post
                        If single digit annual returns are something that "works well" for you, then the 401K is a no-brainer.
                        I don't think you've got much experience; it's been at about 10% over the long term.
                        Use a calculator and you'll find out.

                        Stocks aren't for the short term; it's a long term investment.

                        I gave exact numbers that anyone can easily check; in fact if you use the S&P 500 calculator, it'll list month-by-month changes based on stock price, dividends, interest. Those numbers are most certainly not single-digit returns.

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                        • #57
                          Originally posted by tomhole View Post
                          I will always recommend to anyone that asks that they should contribute to their 401k up to the employer match. For me, I make an instant 100% return on every dollar I contribute to my 401k up to 5% of my income. That's hardly single digit. Anything above the employer match is up for discussion. I concede that you are getting better returns on your RE investments and are diversified outside the equity markets. That appeals to me. Maybe the answer comes down to disneysteve's common recommendation which is that it doesn't have to be all or nothing. Why not a combination of equities and RE (or other non-traditional investments)?

                          Tom
                          I look at the match as "bait" to get you to lock your money away - employers do this to slap golden handcuffs on you, not because they are benevolent.

                          Sure you get your "instant" return of 100% right then, but that doesn't help you any over the next few decades. The match thing is way over-sold.

                          I think people get too caught up in terminology: "Non traditional" is any investment that isn't inside your company's 401K brochure.

                          Most company-sponsored investments are watered-down garbage. But they match you 50 or 100% to get the garbage. But it's still garbage.

                          The returns are awful compared to what you can get if you are willing to look around a little.

                          If you want some of your investments in garbage stuff for diversity, that's fine. I just don't fool with it. I've only got so many dollars to invest, and I don't wish to commit some of it to mediocrity in the name of diversity.

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                          • #58
                            Originally posted by tomhole View Post
                            I will always recommend to anyone that asks that they should contribute to their 401k up to the employer match. For me, I make an instant 100% return on every dollar I contribute to my 401k up to 5% of my income. That's hardly single digit. Anything above the employer match is up for discussion. I concede that you are getting better returns on your RE investments and are diversified outside the equity markets. That appeals to me. Maybe the answer comes down to disneysteve's common recommendation which is that it doesn't have to be all or nothing. Why not a combination of equities and RE (or other non-traditional investments)?

                            Tom
                            I look at the match as "bait" to get you to lock your money away - employers do this to slap golden handcuffs on you, not because they are benevolent.

                            Sure you get your "instant" return of 100% right then, but that doesn't help you any over the next few decades. The match thing is way over-sold.

                            I think people get too caught up in terminology: "Non traditional" is any investment that isn't inside your company's 401K brochure.

                            Most company-sponsored investments are watered-down garbage. But they match you 50 or 100% to get the garbage. But it's still garbage.

                            The returns are awful compared to what you can get if you are willing to look around a little.

                            If you want some of your investments in garbage stuff for diversity, that's fine. I just don't fool with it. I've only got so many dollars to invest, and I don't wish to commit some of it to mediocrity in the name of diversity.

                            Comment


                            • #59
                              Allow me to illustrate the mediocrity of 401K investing versus other, very basic investments.

                              Assume you have $30,000 to work with of your own money. Your employer match is 100% of that amount. So now you have $60,000. You find a superb mutual fund that yields a whopping 10% annually for the next 20 years. In the year 2036, you look at your statement and you now have $366,954 ----- $336,954 profit on your $30K investment!

                              THANK YOU MR. EMPLOYER FOR YOUR GENEROSITY!!!

                              Or....

                              You take your $30,000 and put it down on a $150,000 rental house, financing the other $120,000 for 20 years.

                              Let's assume the following:

                              1. Your interest rate is 5%. Your monthly payment for a 20 year note is $950 per month.
                              2. Your property taxes, insurance, and repairs/maintenance are $6000 a year. These increase 3% a year over 20 years.
                              3. The home's' value increases 3% a year over the next 20 years.
                              4. Your rent is $1500 per month, and that increases 3% per year
                              5. You only rent it 11 months a year.
                              6. Your marginal tax rate is 25%


                              You wake up in 2036, and the home's value is $263,000.

                              Your rental income for the 20 years was $432,428. (Assuming 20 vacant months!)

                              Your expenses (mortgage, taxes, etc.) for the 20 year period were $396,701.

                              Because you were able to deduct all expenses, plus depreciate the home, plus deduct interest on the mortgage, your tax savings for the 20 year period were $81,510.

                              So....including the home's value, net rents, and tax savings, you have made an incredible $350,237 PROFIT on your $30,000 investment.

                              On your $30,000 401K contribution, with your "automatic" return of 100% because of the $30,000 employer match, you earned $336,954 on your investment.

                              Which is more? $350,237, or $336,954?


                              EMPLOYER MATCHES ARE OVER-RATED!
                              Last edited by TexasHusker; 05-08-2016, 03:56 PM.

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                              • #60
                                Originally posted by TexasHusker View Post
                                Allow me to illustrate the mediocrity of 401K investing versus other, very basic investments.

                                Assume you have $30,000 to work with of your own money. Your employer match is 100% of that amount. So now you have $60,000. You find a superb mutual fund that yields a whopping 10% annually for the next 20 years. In the year 2036, you look at your statement and you now have $207,000 ----- $177,000 profit! ! THANK YOU MR. EMPLOYER FOR YOUR GENEROSITY!!!
                                $60,000 invested for 20 years @ 10% is worth $403,650. That's a return of $343,650.

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