Great question, and one for which there is no perfect, correct answer. There are too many variables and unknowns involved, and it is impossible to even somewhat accurately predict where the stock market and card market will be even one year from now, let alone in 10, or even 25 years.
Johnny has given us some specific, factual details of his friend/client's current financial position and status, along with a few more tidbits regarding his family and situational timeline for certain financial/personal things occurring or being achieved. However, what not a single one of you has specifically brought up is the fact that no one has apparently asked Johnny's friend/client the most important question of all. Why?
Why is he asking for advice in this regard with just these two very specific and straightforward options? He must have some specific goal or plan in mind with this investment choice, but whatever it is, no one has apparently directly asked him. There must be some goal he is looking for in making the decision between these too very different investment options. We know he is looking to retire in 10 years, but is this investment supposed to be used to then help fund that retirement? That point is never made clear. Nor do we know about his spouse's work situation and potential savings/retirement. And what about other family and potential inheritances coming to this person? There are so many other unanswered questions to such a decision, it is impossible to give a truly good, helping response without knowing the "Why?" behind all this.
To simply assume Johnny's friend is looking to make a purely financial decision based on which of the two options will be worth the most in 10 or 25 years, may not be what his true goal is, even though that may be what many of you feel is implied by Johnny's question from his friend/client. As someone else kind of alluded to, maybe this person possibly has a collector/nostalgic interest in getting a Mantle card as well, which may factor into the decision. It is possible his true goal is to own a '52 Topps Mantle at some point and he's trying to figure out if it made more sense to buy one now, or put that money into the S&P 500 and make even more over the next so many years so he can eventually buy his '52 Topps Mantle, and still have even more money leftover in his stock investment. Let's ask him first WHY he is making this decision, and then go from there.
As to the tax side of the question, Ryan and a couple others already hit upon the basics of it, but that is too simplified of an answer. Assuming Johnny's friend would buy either the Mantle card, or S&P stocks, and then hold them for over a year, the eventual sale of either will be considered as a Long-Term Capital Gain. Under the current tax laws in place, the LT Capital Gains from selling stock are capped at a maximum federal tax rate of 20%, whereas because the Mantle card would likely be considered as a collectible item, the maximum federal LT Capital Gain tax rate on collectibles is capped at 28%. But the answer isn't that straightforward and simple because those are the MAXIMUM tax rates that can be charged. Who knows what Johnny's friend/client may be making and showing as taxable income in 10 or 25 years from now? Also, we can't accurately predict how much gain would result from the sale of the stocks or the Mantle card years from now, which would have a direct impact on how much taxable income they would have in the year of their sale. Chances are that if the taxable income of this person isn't too high, there will end up being little, if any, difference in what tax rate the LT Capital Gains from the sale of either the stocks or Mantle card would be. And I can't tell you specific numbers because everything is subject to change in regards to the tax laws and rates.
One possible tax advantage to getting stocks over a Mantle card is that at the time someone does decide to sell, you only have the one Mantle card, so the entire gain from its sale will all hit in one single tax year (unless you agree to work out an installment sale with the buyer, which may not be possible if you sell through an AH or online). However, if you invest in stocks instead, depending on your tax situation when you finally decide to sell, you don't necessarily have to sell all your stock at the same time and can elect to spread the sale over multiple tax years, thereby lowering the LT Cap Gains you would otherwise have to report in one single year, and possibly lower your overall tax liability as a result.
The best thing to do in a situation like this is to first, find out WHY the person wants to make such a decision, and what their OVERALL GOAL is from it. Then you simply spell out for them all the different options and the pros and cons for making a choice either way, remind them that tax laws, rates and personal and financial situations and circumstances not can, but will most definitely change when you're talking 10 to 25 years out, and then let them decide what they are most comfortable and happy with as their choice.
Everyone is different in their thinking and circumstances, as well as their aversion to risk and personal goals. Basically, all everyone else posting answers to Johnny so far are most likely giving their opinions as to what THEY would do. But none of you are Johnny's friend/client, and really have no clue as to how he really thinks and feels. All of the points, comments and suggestions everyone has made are great and completely valid, just not necessarily right for this other person.
|