New house; 401k to IRA to avoid penalty

[Bees Knees]

When you add maintenance, rehabilitation, insurance and taxes - it's easy for many parts of the country to pay 4-6% per year to own a home / condo and simply maintain its value. Technically - you NEVER own a house. You only rent it from the state / county / city. Try stop making your tax payments on the property and see how long you "own" it.

Every person who pays rent, as opposed to owning a home, is paying all of those costs too. Its incorporated into the cost of rent.

[Roberts]

Every person who pays rent, as opposed to owning a home, is paying all of those costs too. Its incorporated into the cost of rent.

So by being a homeowner I got better off financially by paying the same bills as if I was renting.

Do you think Whole Life Insurance policies are investments?
Do you think me putting money under my mattress is an investment?
If I buy a gold ounce every month - is that an investment?

Pointing at someone, claiming they are poor except they have the equity in their house - not a good argument that all those payments were going towards an INVESTMENT.

[JohnH]

---> Just because they don't pay a dividend today doesn't mean they wont in the future. (your example is a case study in virtually every Investment 101 class ever given) <---


So does that mean Berkshire Hathaway does not qualify as an investment at the present time?

But when Warren Buffet dies, if the next management team decides to begin paying dividends, then it would qualify as an investment?

I think your answer illustrates why Investment 101 ignores Finance 101.
Of course, there is an objective in making those distinctions - it happens to benefit the investment advisor industry.

[Roberts]

---> Just because they don't pay a dividend today doesn't mean they wont in the future. (your example is a case study in virtually every Investment 101 class ever given) <---


So does that mean Berkshire Hathaway does not qualify as an investment at the present time?

But when Warren Buffet dies, if the next management team decides to begin paying dividends, then it would qualify as an investment?

I think your answer illustrates why Investment 101 ignores Finance 101.
Of course, there is an objective in making those distinctions - it happens to benefit the investment advisor industry.

You don't read very well do you?

[JohnH]

So when you have no sustainable argument to present, you resort to personal attacks?

I'll assume that just because you don't have a rational reply today, that doesn't mean you won't have one in the future...

[Bees Knees]

So by being a homeowner I got better off financially by paying the same bills as if I was renting.

Isn't being better off financially the goal of investing?

Do you think Whole Life Insurance policies are investments?

It is if someone considers buying life insurance a necessity and the Whole Life policy allows such individual to get the same coverage for less than term life insurance.
If buying life insurance is not a necessity, then a Whole Life policy would probably not be a very good investment.
Do you consider living in a home one of life's necessities?

Do you think me putting money under my mattress is an investment?

It is when the stock market takes a nose dive and there is no alternative place to hold on to your capital without substantial risk of losing it.

If I buy a gold ounce every month - is that an investment?

Many would argue that buying precious metals is a good investment. Particularly when the price has been historically out-performing your average mutual fund.

Pointing at someone, claiming they are poor except they have the equity in their house - not a good argument that all those payments were going towards an INVESTMENT.

So only rich people with money are allowed to have investments?

[Roberts]

Isn't being better off financially the goal of investing?

It is if someone considers buying life insurance a necessity and the Whole Life policy allows such individual to get the same coverage for less than term life insurance.
If buying life insurance is not a necessity, then a Whole Life policy would probably not be a very good investment.
Do you consider living in a home one of life's necessities?

It is when the stock market takes a nose dive and there is no alternative place to hold on to your capital without substantial risk of losing it.


Many would argue that buying precious metals is a good investment. Particularly when the price has been historically out-performing your average mutual fund.


So only rich people with money are allowed to have investments?

Oh my. That's horribly enlightening.

[DaveinTexas]

Way to Go Roberts

You managed to tick off John and Bees in the same thread (two of the highest contributing members on this board)! By the way, I'm a Finance major and I haven't heard those terms used in a while, so thank you for the refresher course.

In my opinion, every system has been set up for us to fail (us meaning us and not "them"). Most people that are diligent about saving will have much in reserve at retirement, sit around for a few years trying to conserve what they have saved, only to have a medical disaster happen to them (alzheimers, disability, killed by the poisons in our food supply, etc). Store up your treasures in heaven I say.

You save your whole life and maybe you've managed to set aside a nice nest egg, then poof, the magical stock market crashes for "no apparent reason" and 3/4 of your nest egg is cracked. Would this person have been better off sticking their heads in the sand and not invested in the market, but rather a Sealy Posterpedic? Maybe, hey but at least now they might qualify to use the services of a nursing home without having to spend down too many assets (sarcasm intended).

Conversely, look at the person that invests their largest sum of savings into their humble abode. You purchase a home in the 1980's in Texas paying a measly mortgage interest rate of 18% (more sarcasm) so for the first 20 years you make very little headway into the principal ($18,000 equity at this point). By then your foundation is destroyed (typical in Texas), your AC needs a full replacement and your roof does too (also typical in Texas). Most people don't have $30,000 sitting around so they take out a HELOC. The HELOC is then refinanced into another loan (maybe a Cash Out Refi) during the mid 2000's when ALL homes were overvalued. You now have $0 equity in your home but man you have a really low interest rate. A few years later the bubble bursts and your home is worth about what you paid for it in the 1980's. You have made 0 progress in the time that it would have taken to pay off the house completely. How many clients do you have in that situation?

I say invest in something that holds it's value; like Incan Matrimonial Headmasks. They are extremely profitable, but difficult to fence so use caution. Seriously though, I tell my clients to pay off debts, try to stay as liquid as you can and if anything is left over purchase tangible useful items (food, land, edible animals, tools, firearms, ammo etc). I guarantee that lead will be more valuable than any other metal when you are starving or your life is on the line.

[JohnH]

I'm not ticked off - just really busy today getting ready for vacation. It takes more than a few wrong-headed comments to get me riled up. As a matter of fact I more or less enjoy discussing some of the nonsense that passes for investment advice when I have time.

I do have some other comments to make about how the financial industry brainwashes investment advisors into making arbitrary distinctions which don't actually exist. The industry must to do that in order to pump them up to sell the "investment du jour" because the plain vanilla stuff doesn't pay decent commissions. Usually, just the mention of John Bogle's name is enough to set them off on some sort of rant because he exposed the entire industry for its wealth-destroying practices.

[Bees Knees]

I'm not ticked off either. If you want to trash home ownership because the housing market took a tank, fine. How many times has the stock market taken a tank? While I sit here with my house paid for and my cost of living one-tenth the cost of trying to rent something similar, I'll continue to think of it is as an investment, despite those who think I've thrown my money down the drain.

BTW, I think the best investment possible is pay off your debts. Oh wait, I suppose that probably isn't considered an investment either...

[JohnH]

Probably not, since it doesn't pay any dividends or is likely to do so in the future...

I know that because I've been told it's "taught in virtually every Investment 101 class ever given".
(And I find it necessary to limit my understanding to what I've been told, due to my limited reading skills...)

[erchess]

umnnm John

To me it was clear from Roberts' post to which your last post responded that yes he would consider Berkshire Hathaway shares an investment on the grounds that since it is a Mutual Fund it could decide to start paying dividends.

As for the financial industry setting definitions to benefit itself I do not think they are guilty of that any more than any other industry or any more than I am. We all go into business to make money and we all know that we will have work only so long as other people gain what they perceive as good value for their money and I believe most understand that the best way to get people to have that perception is to make it an accurate one. Thus when I try to keep a client happy I am not being altruistic I am being realistic.

[JohnH]

Yes Edwin, and I understand that. But BH will never pay a dividend as long as Warren Buffet is alive. So according to that definition, BH will not qualify as an investment until he dies, if ever. That's the type of absurd conclusions one comes to when clinging to self-serving definitions invented by an industry with an agenda.

The simple fact is that the definition of an investment, from a financial standpoint, has nothing whatsoever to do with such myopic description. Any place one decides to park some of his accumulated net worth, with the expectation of a future return, is an investment. So in fact there are many investments which yield no dividends, no interest, no periodic return of any type, and yet they stillqualify as investments.

I'll propose an example. Several years ago my wife and I purchased an undeveloped lot with the intention of building a home on it. About 3 -4 years later we moved and abandoned our building plans. The surronding area had exploded with development, so we decided to hang onto it because we believed the property was increasing in value much faster than any other investments we owned at the time. We eventually sold it at what calculated out to be a 15% or better annual rate of return, net of the interest we had paid on part of the purchase price. And it was all LTCG - very tax-efficient. It never paid a penny of dividends, interest, rent, or any other sort of return until we cashed in. But according to the definition provided, it wasn't an investment. Absurd is the only word I can think of to describe that sort of creative torture of the language of finance.

[erchess]

Okay

I do not feel qualified to parse the distinctions between investing speculating and gambling nor between wise and unwise investments. We all know people who will retire in poverty unless they win a large lottery prize but I don't know whether their tickets qualify as investments. And I really like what I usually see on the board and personal contacts from John H and also from Roberts and what I see on the board from Dave and Bees. (I like the books too but I don't know when I am reading Bees and when another contributor.) But I feel that my friend John H has in this tread crossed the line from disagreeing with most of the Financial Services Industry to trashing it and thus understandably offended my friend Roberts. We, including myself have learned not to trash certain firms but how about we learn the same for trashing a whole industry? John H and John Bogle both disagree with most of the financial advice that is out there and I am glad to read what they think until they question the motives of people who disagree with them. In the unlikely event that John H and I disagreed about the proper tax treatment of a particular situation I doubt that either of us would impugn the others' motives or suggest that the other has been misled by greedy other people.

[JohnH]

Yes this does create a bit of a dilemma, but don't let it get you down. I'll readily admit a strong personal bias againt most of the practices of the financial services industry. This isn't the first time we've touched on these matters.

The investment industry structures the game in such a way that most financial advisors must sell their clients sub-optimal products in order to make a living. (For example, true index funds don't pay much in the way of commission). Insurance companies do the same thing, since their staple is whole-life insurance peddled deceptively as an investment, followed closely by most annuities. So as far as I'm concerned, it is what it is, and when I'm challenged I'm going to call it by its real name.

How that relates to a particular individual is entirely up to them. But let me also say that I can have great respect for a person's tax knowledge even while disagreeing with them on a number of other issues. That disagreement might apply to politics, religion, culture, etc. It might also apply to the matters we are discussing on this thread. Hopefully we all have a thick enough skin to let these matters remain in some sort of tension.