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

Maserati wrote:

Relax katainen, I'm not unwilling to listen to facts, just unwilling to engage in debate with you concerning facts that are particular to my situation.

You have corrected no factual inaccuracies, because--and for the last time--I mistakenly used the incorrect term "rates" rather than the correct term "burden", a mistake which I myself identified, yet which you have assiduously ignored.

It appears that while I am soliciting information, it is you who enjoys most hearing the sound of your own voice.

Again, feel free to abandon this thread.

Actually, Kaitainen is easily one of the top few posters on LRC in terms of putting forth intelligent, informative posts. Quite possibly THE top one.

So, let's be clear that it is not just Kaitainen who enjoys reading his posts.

As far as you soliciting information, that appears to be laughable. With your basic premise taken as given (debating how realistic the premise is appears to be disallowed by yourself) the answers are too obvious to bother mentioning. Still, others have humored you here and have pointed them out. Yet you persist? To what end?

Because I'm not sufficiently arrogant to firmly believe that I have the answers. I find it always best to solicit the opinions of others, because there often appears something that one has overlooked, that someone else might have hit upon for some reason.

I have an open mind, and will entertain all suggestions. If the answers are so obvious, maybe you could post a link to them if it wouldn't take too much of your time.

As for Kaitainen, his posts might be fine, within the framework of their own logic. Unfortunately in this thread he has superimposed his own conditions on the discussion, and ends up answering only his own questions.

I still look forward to his responses, if he is able to suspend disbelief for a period sufficient to acknowledge the fact that government-favored accounts are more restrictive than private accounts, and that government can, and does, change social contracts unilaterally. If he is unwilling to acknowledge those two basic facts, perhaps that would cause you to re-evaluate the quality of his posting.

Also, you never know from where interesting nuggets of wisdom may appear. It is even possible from an anonymous message board.

For instance, katainen, what do you think of the future prospects for agricultural land? The farm bill was just passed, the subsidies have been listed, and land prices are essentially at an all-time high, as commodity prices have risen. That may change in a year's time, depending on a number of things.

But really, what do you think of it as an investment? I know that is a very open question, I made that way intentionally. Don't ask me qualifying questions, just make your own assumptions, state them, and state your opinion based thereupon. You can assume anything you want--country, region, leased, particular crops, rotations, flexible zoning, whatever, conservation, whatever.

Maserati wrote:

You create the appearance that you do, by artificially restricting your responses to situations that suit your convenience.

I will assume that you KNOW that IRA's are more restrictive than a simple brokerage account...

You seem to assume a certain structure in life--that is, the individual acting in his or her personal capacity. There are many other ways to structure one's affairs that can have significant tax advantages both for oneself, and notably, for one's descendants. There is nothing "magical" about a legacy trust in a particular jurisdiction enabling the avoidance or very-long-term deferral of, for instance, US federal estate tax. There is also nothing magical about structures in countries other than the USA, which structures afford significant tax advantages.

10% or 20% with respect to its current buying power. Say inflation causes it. Remember, however, that my question was directed not to you, but to Flagpole.

no, i restrict my responses to the things i know something about. i know significantly more than you do about the US tax regime, the international rules in particular and also the rules for retirement accounts. that is why my responses are mostly focused on those items. i want to correct the misinformation that you have posted.

it is true that IRAs are more restrictive than investing outside of an IRA. but the restrictions have no impact on the vast, vast, vast majority of people, including the very wealthy. remember again that mitt romney has at least some of his bain capital limited partnership interests in an IRA. what would you want to invest in that you can't in an IRA? real estate is probably the most common example, but that's more because of the tax deductions for depreciation and interest, and the availability of tax deferred/free exchanges.

as for the estate tax planning with trusts, again, you're right that some planning is available. i thought we were talking about income taxes. if we're talking about income taxes, using offshore trusts or corporations won't (legally) reduce your US tax burden.

and if you want my answer, then i'd say that the US listed equities would increase in nominal value to reflect the inflation. the dramatic economic displacement caused by such inflation would of course cause the stock prices to drop, but the inflation would directly cause an increase in the nominal prices. similarly, international stocks would go up in dollar terms to reflect the declining USD, but then those stocks would go down in value because the largest economy in the world has collapsed. in other words, you're back to your survival scenario.

Maserati wrote:

Again, I don't need to provide any evidence for either the fact that I know more than a couple extremely wealthy people, or the fact that none of them have admitted to owning IRA's.

Further, when I asked them why, they pretty much all responded with "Exactly, why would I? To save a couple of bucks while letting the government hold onto it?"

if your supposedly wealthy friends believe that the government holds onto retirement account funds, then they need to educate themselves.

i also know a lot of wealthy people. every single one of them has a huge tax advantaged retirement account balance. why? because it's an economic no brainer. they are partners at law firms and other professional services firms, so they are eligible to contribute over $50k every year. that's a TREMENDOUS tax benefit (essentially the benefit is that all gains on the investment of those funds will be tax exempt). giving that up because of paranoia is completely silly.

and lastly, dear OP, you were corrected on other aspects of your paranoia too, most notably the crime rate. and yet you dismiss that as government lies or something instead of facing the fact that reality doesn't match up with your paranoia.

The Correctioner wrote:

Actually, Kaitainen is easily one of the top few posters on LRC in terms of putting forth intelligent, informative posts. Quite possibly THE top one.

So, let's be clear that it is not just Kaitainen who enjoys reading his posts.

why thank you. i appreciate it. my tone does sometimes go off the rails a bit, but i try to add some substance when i can.

The Correctioner wrote:

Actually, Kaitainen is easily one of the top few posters on LRC in terms of putting forth intelligent, informative posts. Quite possibly THE top one.

+2

Wow. I'm still at a loss to understand how Romney could contribute to an IRA. Is it that there didn't used to be contribution limits based on income? Surely Romney's reporting a generous income each year. Maybe in the down years for the market he could slip in some contributions but in most years doesn't he exceed the earnings limits?

Too bad we don't have someone with those business smarts running things.

well, we don't have all the information, but it could be a financial nightmare for him.

When he turns 70.5, he's going to have to start taking distributions from his IRAs. That will be in the millions of dollars, and will only get larger every year. And that will be taxed at income tax rates.

Whereas if he had kept the money outside of an IRA, he'd be taxed at cap gains rates, and would never HAVE to sell. It could have been passed down generation to generation, maybe getting a basis step up too.

So maybe it's a good thing he's not running the country.

With the rates of return that he's been getting, I wouldn't be surprised if he came out ahead by hanging onto 15% for decades in exchange for paying higher rates later. For idiots like you and me it wouldn't make sense, but we're not smart enough to get 20-30% stakes in companies for 1% of the buyout value.

Investing in retirement accounts made up of mutual funds is just ONE aspect of your financial health. So, what ELSE would be good to have...and I mean good to have in retirement.

1) Absolutely ZERO debt and a paid-for house. In my case, my house will be paid off in about 3 more years. The taxes where I live are very high though, so when I do retire, I will sell this house, buy one that is of equal or lesser value, and do so in an area with lower property taxes...and that's pretty much going to be the case anywhere in the south or southwest that I want to live.

2) Have a stream of income that is above and beyond your retirement portfolio income. MOST people do this with Social Security. SOME have pensions. Yes, either could change to a lesser amount. Never know when Social Security might change, and since 1978, US companies have the option to restructure pension payouts as part of bankruptcy, so you're at risk there. Personally if I had a pension I would opt for a cash payout if that were offered. Finally, some own rental properties. I will plan on my extra stream of income coming from Social Security and a non-retirement mutual fund that I have which is invested differently from my retirement pile.

3) Invest in such a way (in retirement) so that you can weather a big stock market downturn. EITHER have some bonds in there, OR (and I'm thinking more and more about doing this), have 2-3 YEARS of expenses saved up in CASH. Keep this in a savings account...the purpose of which is to simply take care of your expenses if there is a big stock market downturn...that way you can allow your holdings to recover as you don't take from it. Once the market recovers, go back to taking from your investment portfolio and replenish the cash fund. The reason this is an attractive option to just having a lot of bonds is that stocks typically do a LOT better than bonds.

That's it pretty much. Experts say to have enough money invested so that if you took 4% out initially that that would be ~70% of what you had while earning an income. If you position yourself well, you don't actually need that much (zero debt, paid for house, kids gone, etc.), but at the same time if you position yourself well, you can have MORE income coming in in retirement than you did while working...that is the path I am on currently. Looking forward to it.

Well, just when it seemed like I was getting somewhere with Kaitainen and he finally began (but only began) to respond to what I actually wrote, in part, he goes off the rails once again to label me as paranoid and silly.

Why? Because, once again, he is responding to his own thinking, as opposed to responding to what I wrote.

If Kaitainen is one of the most respected contributors to this board, than I have certainly overestimated the board. Kaitainen, as far as you are concerned, you would be able to make your contributions more meaningful if you relaxed a bit and weren't so adversarial. Your thinking is compartmentalized, and restricted to the envelope of what you know. Sometimes in a conversation you have to accept that other people in it might know more than you do, or different things than you do, about the topic at hand. You come off as juvenile, off in your corner, playing with your favorite piece, while not participating in the larger game. Fine--IF you really understand and disagree with the premises of a conversation and therefore feel that the conversation has no merit, feel free to apply your energies elsewhere. If you showcase your lack of understanding but continue to participate, you will be marginalized. I know, I used to be like you, 20 years ago. It's funny how what goes around, comes around. Do you really think that labeling someone as paranoid and silly will engender the desire to continue civil conversation?

As a result I won't be responding to your posts anymore--not because I am hurt, but because life's too short.

I still welcome the input of opinions on investments in American arable land from other contributors, particularly land in the northeast and upper midwest.

Also, I welcome input on the future prospects of investment in regional business micro-finance. There is of course a market opportunity, but will future conditions permit its profitable exploitation?

Maserati wrote:

he goes off the rails once again to label me as paranoid and silly.

Why?

because you are paranoid and silly.

you're envisioning zimbabwe style inflation in the US, without any plausible explanation for how that happens. you're envisioning government confiscation of private assets, as if that is a normal thing in western countries. if you're really concerned about these things, you are paranoid. you can't plausibly explain how any of these things could happen in the US, absent some actual calamity like a nuclear war or an asteroid strike or something. and if you're thinking of that type of calamity, you'll probably get as much out of watching the walking dead as you will from planning investments.

but hey, if you think zimbabwe style inflation is going to take place in the US, do yourself a favor and borrow as much money now as you possibly can. that's what you should be doing. instead you say you are nearly debt free, so who knows what you are really thinking.

Flagpole, although it seems that I believe in the proper use of credit more than you do, I actually agree with (1), and have zero debt except for the 1K LOC, and a paid-for house. Like you, I live in a very high-tax jurisdiction, but possibly unlike you, I do not have a large real estate investment in my primary residence. I probably will hold onto it as a rental property, and not use it as a full-time residence.

Regarding (2), a pension I don't have, and I am absolutely not counting on receiving any SS distribution. I am 20 years away from that now, and to me, that is an eternity as far as the SS account is concerned. I agree with you about rental property, and potentially about mutual funds also, but I look to find a local business opportunity that returns at least the same as a mutual fund investment. Yes, it will require more work, but it will also enable more control. Realistically, the extra income will come from a mix of business and some mutual-fund-type vehicle.

Regarding(3), you acknowledge that SS might change, and you know about pension restructuring in bankruptcy--well, bond-holders can take a haircut as well, particularly muni bonds going forward. Have you seen the unfunded liabilities of some of the bond issuers? The balance sheets are looking less and less attractive in many instances (not all, of course), although I know people getting 5% tax-free right now. I do have, and plan on keeping, years of expenses as cash, currently paying a whopping .15% in a high-yield savings. Yes, I might be moving it to a .85% account sometime. More likely, I will buy some physical gold and silver--yes there is the potential for loss, but not that much because it is easily liquidated in some places, and keep only maybe 1 year's worth in US cash.

I think his thesis is that there will be a breakdown in infrastructure - a natural disaster or terrorism or some other catalyst will be severe enough that the electricity grid goes down and because we now lack the know-how (bear with me here) to fix it, chaos will break out in the big cities. the gov't will print money to try to keep the economy going, but that will fail because of lack of demand and down infrastructure.

Globally the world sells dollars because who would want the stinking worthless things, which could in some way spark inflation because people will need to buy energy and other imported items with their devalued dollars.

is that at all plausible or what you are thinking, Maserati?

Pretty much, although essentially everybody is tied to the US dollar--however, there are those who are already preparing for a rather quick break, and putting replacement structures in place. FATCA compliance has hastened this preparation.

Again, I'm not talking armageddon--only a serious event which, if it comes at a certain point during your working/productive/investment trajectory, could be devastating, even if you are "normally diversified".

I have options that I can't talk about, but I think it may be wise to retain some US-based investments in the future...I just wonder what they should be, and whether I will be around to manage them or not.

Maserati wrote:

Pretty much, although essentially everybody is tied to the US dollar--however, there are those who are already preparing for a rather quick break, and putting replacement structures in place. FATCA compliance has hastened this preparation.

Again, I'm not talking armageddon--only a serious event which, if it comes at a certain point during your working/productive/investment trajectory, could be devastating, even if you are "normally diversified".

I have options that I can't talk about, but I think it may be wise to retain some US-based investments in the future...I just wonder what they should be, and whether I will be around to manage them or not.

Ummm...yeah.

OK

Maserati wrote:

FATCA compliance has hastened this preparation.

...

I have options that I can't talk about, but I think it may be wise to retain some US-based investments in the future...

first, thanks agip. as you know, the things you list couldn't really happen in that order, because the gigantic destruction of demand for energy would not lead to an increase in the cost of energy. but hey, if this guy believes in contrary things, so be it.

second, FATCA compliance has led to foreigners holding fewer USD or USD denominated assets??? sure thing. i imagine you can explain how that makes sense? perhaps you can start with the fact that FATCA compliance relates to the accounts of US citizens, i.e., not foreigners.

third, awesome, you have options you can't talk about. so you're looking to us for advice but you won't tell us about your secret options? that doesn't seem very friendly.

finally, i'll say it again. if you really believe that hyper inflation is likely, why in the world are you debt free? you want to be a debtor, not a creditor, when unexpected inflation arrives. even if you think the odds are only like 5%, you're not diversified if you are only a creditor. or at the least you want to not be holding cash because the nominal value of everything else will shoot up, while cash will of course decrease in value. you're consistently telling us things about your financial situation that contradict your stated assessment of risks.