What to do with money now, assuming a huge crash is coming?

Lots of money is taxed twice--consider the effects of estate tax.

Welcome to the new America, my friend. If one wishes to remain in the US, it is something we must learn to live with, because it is an inevitable trend IMO.

I'm still waiting for other suggestions. I just returned to the US from various parts of europe, where mattress stuffing is commonplace. At the end of Feb. there was a wave of closings on real property transfers in France, as the new tax rate took effect on March 1. EVEN IN FRANCE, where rates are already high, the rates creep ever upward. They have taken to forming familial corporations to hold real estate to attempt to avoid estate tax payable upon the transfer thereof.

People will always look for ways to benefit their personal situation. I don't see good times ahead. I'm still waiting for interesting suggestions, and reasons therefor.

Maserati wrote:

Really Recognizer, I don't know why you continue down this path.

"functional equivalent of eliminating the US government entirely"

Better? I thought it was understood, but evidently not.

As for the remainder, like I said, it is a generalization, not an exaggeration. And if you're not going after government money, you should be.

(1) OK, I'll agree that it is not a productive path of conversation. We disagree. That's about all there is to that.

(2) As far as going after government money? No, I shouldn't be. The combined revenue growth of my two companies over the last four years has been:

2010: 85%

2011: 27%

2012: 40%

2013: 62%

This is better than 99.8% of all US companies (made up stat - let's just say the vast majority). So, we're doing better than the vast majority of companies out there who, by your declarations, are actively going after government money.

Who then is making the mistake?

Revenue growth in the abstract conveys very little, if any, meaning. That said, you might have been up significantly more had you pursued government money.

I do know that there are people who assiduously avoid government contracts, and that for some businesses it makes sense to do so, given their situation. Your business may be just such an enterprise, I have no idea.

Good luck to you.

What bothers me, among other things, is the unilateral varying of the social contract by the government.

And, that variance is hardly ever, if at all, in favor of the citizen as an individual.

Who is to say what the tax rate will be when you begin to withdraw from your retirement account? The government.

Who is to say how much you can put into such an account, both annually and in total? The government.

Who is to say whether or not you must withdraw, whether you want to or not? The government.

Who is to say what the effects are of early withdrawal, if needed? The government.

I know Obama's list are only proposals, but consider what would happen with the estate tax exemption: it was put into place years ago, has risen to the point where it is now 5+ million, was even revived when it was supposed to have sunsetted back to 01/02 levels, and now they are considering "dialing it back". Likewise the highest estate tax rates: they crept downwards from 55 to 35%, only to begin creeping upwards again to 40%, with higher proposals on the horizon.

These things afford windows of opportunity, but the windows are such that you have very little leeway to take advantage of that opportunity--for instance, retirement accounts are pegged to age which you cannot change, and while you can choose the year of your death, not many choose to do so for obvious reasons.

I consider estate taxes to be morally and legally unjustifiable, so I will talk about only retirement accounts. Yes, I understand that they are designed to "give a tax break", and that many feel that it is a sort of "gift" to the taxpayer from the government. Let's assume that such an attitude is an appropriate one to have toward retirement accounts--the problem then becomes that of a lack of control.

Lack of control is a problem because people relying upon the social contract organize their lives and adjust their affairs upon the (formerly) reasonable reliance that such a contract will be executed as expected.

In many ways, it is easier in life to ignore contracts that can be unilaterally varied. Yes, I know there are costs and benefits to every contract in life, including purely private ones, and that retirement accounts fall somewhere on the spectrum, and not necessarily at one extreme end.

But choosing to avail oneself of their benefits and attendant burdens should depend entirely on the particular position of the individual. The current mantra that everybody should have skin in the game, that everybody should be invested in the markets, is just plain inefficient, and is a disservice to many.

cool post. I never thought about retirement accounts quite like that.

Your main point seems to be not to rely on the government too much, because the gov't can always change its mind without your approval.

This is true, but isn't it like saying 'never build a house because a nuclear bomb (or earthquake or hurricane or whatever) could knock it down without notice and certainly not with your approval'?

best thing I can tell you is to be diversified - don't rely on anything too much. Have a 401k, have a trad IRA, have a Roth IRA, have some non-retirement money...so if one leg of the table breaks, the others will still be there.

You can't go through life paralyzed by fear of low percentage events. This is my worry about you.

Although you don't seem paralyzed - you seem to be doing a lot.

Maserati wrote:

What bothers me, among other things, is the unilateral varying of the social contract by the government.

And, that variance is hardly ever, if at all, in favor of the citizen as an individual.

...

Sorry to cut your post short in quoting you. I think that you raise some good points. I need to focus on a couple of things to avoid getting lost in trying to reply to all 19 points.

1) Yes, the government does have unilateral control of the terms of these various social contracts. For instance, if the government decides to cease paying social security benefits to anyone with savings over $100,000 there is nothing you can do about it (aside from voting...). Admittedly this is a bit of an uncomfortable situation but...

1a) Is there any alternative really? Aside from anarchy (which I doubt you would like)? There WILL BE a government. As baddest dude on the block and final arbiter of disputes the government WILL have unilateral control. To complain about it seems a bit like complaining that you don't like sunshine - The sun is going to shine whether you like it or not. You might as well accept it and pursue optimal strategies around that fact (I know you are saying something like this yourself but your tone of near paranoia against the government does not sound healthy, realistic or productive).

1b) 'The variance is hardly if ever in favor of the individual'? I think that history suggests otherwise. Take one statistic - average individual tax receipts as a percentage of GDP:

1945 - 1950: 7.3

1950 - 1955: 7.3

...

2008 - 2012: 7.1

I don't see a large, one-sided trend here. Do you? To maintain the balance that the numbers show it must be true that if there are areas where the government has been taking more and more in taxes over the last 70 years (which I don't dispute) then there must also be equally significant areas where the government has been taking less and less.

Bottom line:

1) Yes, the government is 'in charge'.

2) No, the government is not out to screw you.

3) Sometimes changes in policy may run against you.

4) Sometimes changes in policy may run in your favor.

5) It is easy to find individual items to complain about but the overall picture is relatively benevolent.

6) Invest as much as you reasonably can. Diversify. Don't worry so much. Enjoy life.

are you guys even reading the 401(k)/ira proposal? you are saying things about it that are completely factually incorrect.

and maserati, your understanding of the tax benefits of retirement accounts remains laughably ignorant. maybe that's why you are equating the obama administration's retirement account proposal with imposing extra tax on a retirement account.

K:

The point is that the gov't can change the rules on you, not so much that this particular proposal is massively damaging.

kaitainen wrote:

My Portfolio Grew wrote:

With the proposed change, the Feds will be taxing the same money twice. Will someone be able to make a case against this?

For high earners they will be forced to pay partial taxes as contributions are made to 401(k)s and will be forced to pay full taxes on all funds as they are withdrawn. Doesn't seem American to me.

are you guys even reading the 401(k)/ira proposal? you are saying things about it that are completely factually incorrect.

and maserati, your understanding of the tax benefits of retirement accounts remains laughably ignorant. maybe that's why you are equating the obama administration's retirement account proposal with imposing extra tax on a retirement account.

Why do you need to read it yourself when Fox News can do that for you?

agip wrote:

K:

The point is that the gov't can change the rules on you, not so much that this particular proposal is massively damaging.

fair enough. i was remembering the extended discussion about retirement accounts earlier, and i thought he was now asserting that the obama proposal proved the point.

i don't see how changing tax rules prospectively (i.e., only for new income) is remotely equivalent to asset seizure, but that's just me.

Many thanks for the responses, I will go through them, but this quick note: it is my understanding that some conditions such as I have described are used in the Fed stress test 2012-2014--double-digit unemployment, 50% reduction in equities prices, 20% drop in house prices.

I know it's not exactly analogous, and I don't claim to know the finer points of the stress test including interest rates, inflation, and risk assessment--the one thing I do know is that risk assessment varies wildly depending on asset class.

Just another thought to add to this thread.

katainen, agip summarized it well. I consider this mechanism asset seizure because while you play by an existing set of rules, you have a reasonable expectation that what you are left with after your tax obligations are satisfied is entirely your property, over which you have dominion and may do as you please without fear of further taxation.

Addition taking of any part of that asset is equivalent to seizure, and should only be possible in a time of national crisis--and at that, fair compensation should still be given, but the payment schedule should be favorable to the government.

If new rules regarding IRA's and other retirement accounts applied only to those contributions and associated gains made after such time of promulgation of said rules, there would not be any such taking. Of course, the accounting would be significantly complicated, but that is a valid reason for not changing the rules all the time. However, new rules of this type tend to apply to contributions and associated gains made before the new rules came into effect.

katainen, I understand perfectly well the current tax benefits of retirement accounts. My point is not that such benefits do not exist, but that they are subject to unilateral change by an insatiable government that is, and increasingly will be, looking for money anywhere they can get it. And retirement accounts are one of the absolutely easiest places to get it.

This is essentially inarguable. As compared to privately-held assets NOT subject to "retirement account" regulation, the benefits granted by the government on retirements accounts are legally a PRIVILEGE rather than a RIGHT, and can thus more easily be withdrawn, compared to the property RIGHTS attendant to private property.

Even though part of the retirement account is private property, the tax benefits thereto attaching have the character of a removable benefit, and can easily be removed. The question is whether or not the reliance on the future existence of those benefits going forward is reasonable on the part of the individual citizen.

Given both current and future projected fiscal conditions, I think it unreasonable. If that conclusion is accepted, the next question then becomes how severe the changes are likely to be, and at what point the individual's calculus dictates that the benefits of retirement accounts are no longer worth the costs, both current and projected.

That depends on many things, most particularly the individual's personal situation, other investment opportunities available, and the individual's business motivation and acumen--along with, of course, market conditions, etc.

All I'm saying is that people need to take a good hard look at these things, and consider them seriously. I understand that the average people hold in such accounts is very small even considering the absurd gains of last year, but the amount of money is not unimportant, especially if one is younger and just starting to contribute. Also, I don't think that investment advisors do a particularly comprehensive review of options available for growing wealth.

OK man, believe it or not I agree with most of your "bottom line", except the last part of #5, that the overall picture is relatively benevolent.

It is particularly not if you consider the situation going forward. When I talk about policy changes not favoring the individual, I am talking about the individual accumulation of wealth. Policy changes in the aggregate are generally aimed at redistribution, this is understood, and fine, but does not favor the individual accumulation of wealth.

The problem going forward is debt and unfunded liabilities, from social programs to decaying infrastructure.

The only ones who have made out well as individuals are those at the VERY top. Yes, I have some money, but not $100M. The level you need to achieve to be in the very top has increased rapidly in the last few years. If you have $1M can you avail yourself of the same mechanisms as someone with $100M? No. How about $2M? Maybe, depending on your situation and age, but probably not. $5M? That's getting better.

I'm not saying that diversification is a bad thing, I am saying that people should have a better understanding of what they're getting into when they avail themselves of government benefits. Look at what average people have in terms of personal wealth--it reduces to 2 things: 1) home equity, and 2) a retirement account. Average people tend not to have valuable personal articles, productive land, business assets, etc.

Home equity is subject to the vagaries of the market, and has changed either positively or negatively over the past while depending on where you are. Lots of homeowners in non-recourse states have gone the foreclosure route to dump their negative equity. Fair enough, they are playing by the rules.

As far as retirement accounts go, the average 401k balance in 2013 was $89k, up from $77k in 2012 due to market gains in 2013. For those aged 55-64, the average was $165k; if they had a 401k and an IRA, it was $261k.

Those retirement account numbers are generally considered insufficient to sustain retirement alone, even with the huge gains of 2013.

As far as the home equity goes, the national negative equity rate is still around 20%, although due to housing price gains in 2013 it fell from a 2013 high of around 32%. This means that 1 in 5 homeowners are still in a negative equity situation. And here's the kicker: even though the percentage of homeowners without negative equity has risen in the past year, that rise has been accompanied by a concurrent rise in borrowing against positive equity--in 2013 there was a 31% year-over-year increase in HELOC's. Many people have essentially no equity in their homes.

So we have the situation where personal wealth reduces to 2 things: retirement accounts that are insufficient to fund retirement, and home equity, which is not all that it is cut out to be.

If it is the job of investment advisors and wealth managers to effectively manage money and finances of the individual, in the aggregate they have done a piss-poor job, because essentially none of the current generation is sufficiently-well prepared to fund their own retirement. I conclude that the existing model of "wealth management" and "investment counseling" is insufficient.

This is a conclusion based on abstracts, but I have concrete reasons for that belief as well. I have considered for years that the operation of a business has been a hugely neglected possibility, and that the lessons of recent history have not been heeded, especially concerning portables like jewelry and art, for instance. These are just for starters. BTW my art portfolio has outperformed everything else I have--and yes, some of that is due to luck, but some of it is due to good sense and planning. I would give it 60% planning and work, and 40% luck--but the very fact that I am in that sector to begin with is entirely my doing (well, mine and my wife's). It is something that I never thought about personally until it was brought to my attention, then I listened and over a period of 15 years have acted on what I learned.

Valuable personal property, productive land, business enterprise, etc. should all be considered, given a person's individual situation--yet they essentially never are, and as a result, essentially nobody is sufficiently-well prepared to fund their own retirements.

I'm not paranoid, I function perfectly well, but I do look deeper than the prevailing orthodoxy espoused every day on such bubble-gum outlets as CNBC and Bloomberg.

Nor am I paralyzed, nor do I live in a bunker. Again, I do have some retirement accounts, and buy groceries and gas at the same places you do.

Sally Vixxxens wrote:

Maserati wrote:

Who is to say what the tax rate will be when you begin to withdraw from your retirement account? The government.

Who is to say how much you can put into such an account, both annually and in total? The government.

Who is to say whether or not you must withdraw, whether you want to or not? The government.

Who is to say what the effects are of early withdrawal, if needed? The government.

Well, those retirement accounts were created by Congress, so of course it's the government that tells us how to handle them. If you don't like it, put your money someplace else.

Yes, exactly.

Maserati, if France doesn't have a government, where is the 58% of my salary I'm paying in income taxes going?

Man, I was worried about the correction a long time ago. I moved my retirement to safe shit. I missed out on a year and a half of illogical, illrestrained, unjustified growth. The market is PURELY emotional.

That number you quote is individual income tax. That does not include individual social security tax. Or individual Medicare tax.

If you look at the overall, cumulative tax on individuals, you might find a large, one-sided trend.

agip wrote:

best thing I can tell you is to be diversified - don't rely on anything too much. Have a 401k, have a trad IRA, have a Roth IRA, have some non-retirement money...so if one leg of the table breaks, the others will still be there.

You can't go through life paralyzed by fear of low percentage events. This is my worry about you.

Although you don't seem paralyzed - you seem to be doing a lot.

Spoken like a true stock salesman.

"be diversified" - own stocks & etfs in a 401k, stocks & etfs in a trad IRA, stocks & etfs in a Roth, and stocks & etfs in a regular brokerage account.

Good grief. Mr "financial advisor"... please learn what true diversification actually means.