For the first time in a while, the ole Captain had enough money saved up that he could start thinking about throwing some money in the ole IRA.
You might at first think this is not a problem. But it is, young aspiring economist. It is. For the problem facing anybody under 65 who still has a bit of life expectancy left is:
Precisely what do you invest your money in?
All of you know my general concern that money coming from:
1. Retirement dollars of baby boomers and Gen X
2. Quantitative easing money being injected into the financial markets and
3. Low interest rates prompting a trillion dollars worth of buy backs
is jacking up stock and other asset prices that there's effectively no good deals out there.
The PE ratio shows the stock market overvalued by almost half:
This results in a dividend yield of LESS THAN 2%
Housing only pays a whopping 4% today (and that's if you don't consider repairs and expenses)
And even an investment like education increasingly fails to generate the returns necessary to validate it.
Alas, today's investor is faced with the following effective REAL rates of return:
Stocks 0%
Savings -1%
Real Estate 2-3%
Education - HA HA HA HA HA!!!!!
Now naturally, many of you are saying,
"Wait! 0%??? The stock market has been booming!!! How do you get 0%?"
Well, inquiring young mind, I'll tell you.
You see, there is no such thing as capital gains. The real rate of return stocks (or any other investment for that matter) provides is the income or profit is generates.
Housing generates rents
Bond generate interest
And stocks generate dividends
However, ever since we thought it'd be a grand idea to designate stocks, bonds and other marketable securities as the default investments for our IRA's and 401k's back in 1978, stocks have gone up NOT based on their profitability, but by simply how many trillions of dollars-worth of mindless sheeple's money they throw into their 401k's accounts every paycheck.
Microsoft hasn't paid a dividend since it's existence?
Screw it, buy more. The price might go up!
The S&P pays less than a Kaazaa account?
Screw it, buy more! The price might go up!
Tinder or Twitter don't generate income at all!!!???
Screw it, buy more! The price might go up! IT'S AN IPO!!!
And so why we see the above ABYSMAL and PETTY REAL rates of return for the various asset classes.
So where precisely is somebody who demands an adequate rate of return to invest their money?
Sadly, it looks like entrepreneurship may be the only place to go.
It wasn't until I was having a conversation with my dad while running did I notice that even with all the tax benefits and government incentives to invest in IRA's and 401k's, the best use of my money is sadly to reinvest it in my various ventures.
If I drop $500 advertising my books on the Tom Leykis Show, I on average double my money.
If I drop $100 advertising Asshole Consulting on Viva la Manosphere, I get about a 60% rate of return.
And if I drop $200 running ads on Marginal Revolution for my books, I get about a 70% rate of return.
Naturally of course, I don't enjoy any of the tax benefits on these investments that come with the government ordained IRA's and 401k's.
But so what? Even adjusting for taxes, investing in your own private ventures generates MUCH higher rates of return than the government approved investments for your retirement account.
Tom Leykis post tax rate of return = 75%
Stocks (still) = 0%
Viva La Manosphere post tax rate of return = 45%
Bonds = 1.2%
Marginal Revolution post tax rate of return = 50%
Real estate = (post property taxes, repairs, insurance, etc.) -5%
Now naturally key to all of this is to get a product or a business in place where expending such money on advertising, equipment, etc., would generate such returns. And I will be the first to admit that that is not easy. For every successful business I have, I have at least 2-3 that have failed, and that says nothing of the labor put into researching, trying and deploying these ideas. But all those drawbacks aside, returns are so non-existent in today's financial markets, you may not have a choice. It is a mathematical impossibility to rely on today's conventional retirement planning tenet of "compounding rates of return" when those rates are effectively at or near 0%. Ergo, it practically behooves you to have your hand at entrepreneurship and see if you can't make up your retirement from scratch.
Of course, most people will point out and say, "Not everybody can be entrepreneurs! If we all became entrepreneurs there'd be no workers or economy!"
Thankfully, nowhere near "everybody" reads Captain Capitalism.
Now if you'll excuse me, I'm going to go and work on my next business idea.
Entrepreneurship may be only feasible to make a living, but for retirement, the only feasible plan is to return to the beginning. Buy fertile land in a moderate climate, that is not too far away from a major water source. Learn how to farm, hunt and fish. Get lots of guns and even more bullets for when "they" (can be anyone) come to take what's yours. And "they" always come.
ReplyDeleteI have been advising my soon to be high school graduate nephew on some potential career avenues (mainly entrepreneurship) to pursue. He is doing the college thing, going for a STEM degree, not some useless BA in political science degree. I also advised him, if he can work it in to his schedule of classes to take at least one class in "business", besides all of his STEM classes. Something that will aid him in starting his own business. I think he "gets" it, because both his mom and dad have started micro-businesses, to generate added family income.
ReplyDeleteExcellent post Cappie. I have been sitting on cash for some time. Based in part on reading your blog and listening to your podcast I stopped investing in my IRAs about a year ago, bought quite a bit of gold and silver, and put the remaining monthly "retirement" cash flow into my safe each month. My problem has been not knowing what to do with it as it is lying fallow, as it were, now. I will have to look around at what I do and see if I can come up with a way to "reinvest" in my own ventures, at least a portion.
ReplyDeleteThe biggest problem that I can see is that we don't all have ventures in which to invest. I do have a part time business but I am so busy with it that I don't really want or need to expand, and my regular job is enjoyable enough that I am not interested at this time in quitting and going full time with the P/T venture. I'll have to give it some thought.
Thanks.
"Thankfully, nowhere near "everybody" reads Captain Capitalism."
ReplyDeleteJust like Neal Boortz said, "If we were all logical, then who would cook the French Fries?"
Now we're getting somewhere. There are also good investing options, but they require education, experience, and the right mindset.
ReplyDeleteI particularly like evil derivatives - stock options. It's entirely short term the way that I invest (1-3 days), but you can go longer with investing in indices without too much risk.
I can usually average around 10% a month, but it took me years of education and practice to become an overnight success. You also have to build up capital first.
Well said, cappy.
ReplyDeleteThe bottom line is that investing for the long term in anything dollar-denominated is a losing proposiion. Then there is the common(?) sense-based fact that a run on 401Ks by Boomers cashing in on retirement means stock prices plummeting into the basement, thus eradicating even theoretical wealth gained. Traditional investment instruments like 401Ks and IRAs are just Uncle Sap's tools for subsidizing Wall Street.
Cap: I think more or less your right. We are sorta being forced into this role to do the best we can to escape from the rat race. For sure, with the ramp job of all asset classes and ZIRP, there's not much incentive to allocate funds in low yield instruments. It's never easy to strike it out on your own, but what other choice is there if you want to keep your sanity.
ReplyDeleteAn enterprise that does not pay a dividend to its owners can nevertheless provide its owners with real return.
ReplyDeleteYou give an example yourself. If you invest $500 in advertising an already written book you can increase sales by $ 1,000
Look at the book as a profit generating enterprise. If you paid out to yourself every cent of sales after expenses it would have a certain yield or return and be valuable to you for that. But if you plowed the profits back into advertising and increased sales, the book could be more valuable to the owner. Selling the rights to the book to another owner (a greater fool in your terminology) would be at a higher price if it generated more sales.
As long as an enterprise can generate a higher return by reinvesting profits than the market returns on average it can be a wise move that maximizes owner return.
If Apple paid a 10% dividend from the garage days it would have grown at a morch lower compound rate.
The only way we are ever gonna make it Captain, is with multiple revenue streams. I'm about ready to tell Corporate America to stick it up their asses with the micro-management strategies from kids with the ink still dripping off their overpriced fucking MBA's. It's getting ridiculous in this oil biz with all of the cost cutting, scaling back, and more obstacles being put in our normal biz routine daily. We've got reports that report on other reports for reports that our investors read every day to see how much money they are losing on their gambled investments in our company. Increasing shareholder value and lowering employee futures is what it's all about. I've got more than a few money making ideas I'm about to bust out on these bitches. Again, MULTIPLE REVENUE STREAMS...
ReplyDeleteRe: dividend-less stock
ReplyDeleteYou can raise milk cows, which pay you an income every day, or beef cattle, which require money to be invested for a long period of time, and still make money in the end.
Cappy Cap,
ReplyDeleteI am a senior electronic engineer. Senior meaning I am older and more experienced and more expensive.
Currently unemployed, thank you GE, I find few people even consider me for employment. "He is too expensive; too old; we can hire three graduate for his price"
These worthy employers ignore the fact that you get what you pay for.
So, consequentially, I am doing everything I can to earn money. I am working on four projects in the hope that one will win. I unemployed but very busy.
Cappy, the MSM has picked up your ROK article on Mad Max and is sending trolls over to torpedo it. Watch your 6, boss.
ReplyDeleteCappy, I believe the PE ratio of the S&P 500 is not 27, it's around 20 or so, which is on the high side, but not obscene by any stretch of the imagination. http://www.multpl.com/
ReplyDeleteLike anything, your millage may vary. Just like a STEM degree can have have a very high ROI, so too can real estate if you choose a good location.
If I drop $500 advertising my books on the Tom Leykis Show, I on average double my money.
If I drop $100 advertising Asshole Consulting on Viva la Manosphere, I get about a 60% rate of return.
And if I drop $200 running ads on Marginal Revolution for my books, I get about a 70% rate of return.
But then you have the issue of scalability; otherwise you could keep reinvesting in Leykis ads and be the richest person in the world. Stocks and real esate may not provide those huge rate of returns, but you can plow a huge amount of money into it whereas a lot of entrepreneurship can sometimes be hard to scale. And given the high rate of failure for small business, sometimes a 3-10% YOY return for stocks and real estate is pretty good by comparison. A lot of fortunes have been made doing just that.
Great post Cappy, AS Always!
ReplyDeleteI believe you are probably correct, and may be I should start lightening up on stocks. But note that with stocks at a high, you could consider selling short and buying back at a lower price, especially if you can pick some high fliers.
Also note that although the market is high, oil stocks are super low and have lots of room for recovery if oil prices go up. (I own some of these)
Just a thought.
Why retire ?
ReplyDeleteI say:
1) do what you like until you drop !
2) you don't have to live old !
Living until 80 would make sense if you could keep your young and powerful 20 years old body all that time.
But after 35 years old you start to age, to rot, to loose bodily functions and capacity.
The quality of life at 80 years old is not the same as 20 years old.
What's the point of rotting slowly and painfully into old age ?
Live a short and full life.
Live a short and happy life, just like the propfan:
http://www.airspacemag.com/history-of-flight/the-short-happy-life-of-the-prop-fan-7856180/?c=y&page=3
Here's an idea captain.
ReplyDeleteSince you seem so awed by the pentagon's cruise missile projects.
Why don't you invest in war and ransom the government for a comprehensive retirement fund in exchange for not firing at them ?
They say you must take risks in life.
How about that.
As always Cappy you are the man! :)
ReplyDeleteGuess who made the news?
ReplyDeletehttp://www.dailymail.co.uk/news/article-3083606/Blogger-calls-boycott-Mad-Max-Fury-Road-feminist-piece-propaganda-posing-guy-flick.html
Anon@12:14
ReplyDeleteEasy to say when you are 20. As you get older you find that you are perfectly content to continue living.
Captain,
ReplyDeleteYou make good points, but I'd add these:
- Have children, and involve them in your business, whatever it is. They can take over when your mind/bones/muscles slow down, but still rely on your knowledge. This has been done for centuries.
- Choose something that is recession-proof and offshoring-proof. In my case (as someone stated above) I put my life savings into hundreds of acres of wooden land. Which I use to make firewood, a vital commodity around here (northern Ontario, Canada), especially with the electricity becoming unaffordable. That's something I can do as long as I'm healthy, if not, my kids can carry on - see above.
I agree completely with your sentiments, and have thought about it quite a bit over the past couple of years.
ReplyDeleteWhat's the point of trying to save $300,000 in a retirement plan paying 2%? That's only $6,000/yr in income... so, does that mean if you start up a website that generates $500/month income that it also is worth $300,000?
If so, I'd say it's a helluva lot easier to start the website than to save $300,000 - especially since it will take 36 years to double your capital with interest compounding at only 2%.
There are better things to invest in. For example, There's a cottage I sometimes rent on Vancouver Island which is a small home business for its owners - it's their guest cottage. It actually used to be a shed, and the guy built the thing himself out of it, and they rent it out for $800/wk.
Think about that ROI - I sometimes check their vacancy schedule, and they seem to rent it out a good 10 to 12 weeks out of the year - so, even let's say there's only $500/wk profit left after expenses, they are still taking in $5-$6,000/yr income. If it cost them, say, $60,000 to build the guest house, then they are pulling 8% to 10% a year from their investment... and it can keep generating income for them well beyond retirement.