Taking money out of retirement funds to purchase cards

[Johnny630]

Originally Posted by raulus

OK. Let's assume the seller got 75% of the buyer's premium, and zero listing fees. You and I aren't going to get this deal when we sell our items. Last time I consigned with this AH, they kept the juice, and I paid 7.5% listing fees. But let's just roll with this generous assumption for now.

So the sale was for $10.5M, with a bidder's premium of $2.1M, total of $12.6M. If we assume that the seller keeps 75% of the bidder's premium, then the seller nets $12.075M.

Now to the fun part - paying taxes. The seller's basis was $50k, which is well known. The gain is therefore $12.025M.

The feds get 28% for capital gains on collectibles. Plus 3.8% for the Obamacare tax on capital gains. So 31.8% to the feds.

But wait, there's more!!

The seller, as I understand it, lives in New York. The top marginal rate for the great state of New York is 10.9%. I thought I also read that this seller also lives in New York City, which adds another 3.8%. So state + city gets you another 14.7%. And under the new tax law, it's not deductible on your federal return either. Brilliant!

So all-in, taxes are 46.5% on a gain of $12.025M, which gets you to taxes of $5.6M. Seller nets right about $6.425M after taxes. Even with very generous assumptions about who gets the juice, and no listing fees.

If the seller was in a zero tax state (and city), then that would help. The seller would net $8.2M in that scenario. Hopefully this seller moved to Florida last year, although I'm guessing that Governor Hochul will still work like the dickens to get NY's cut in that scenario.

But whether we're talking about $8.2M or $6.425M, it's still a lot less than $12.6M.

I've always said this, cards may in theory seem easy and profitable when the time comes to liquidate, until you see that tax bill, ugh. That being said a net of $6.425 million ain’t too shabby for a 30-year investment of $50,000. I'd take that return everyday of the week and twice on Sunday's !

[raulus]

Originally Posted by Johnny630

I've always said this, cards may in theory seem easy and profitable when the time comes to liquidate, until you see that tax bill, ugh. That being said a net of $6.425 million ain’t too shabby for a 30-year investment of $50,000. I'd take that return everyday of the week and twice on Sunday's !

If we could get that return on all of our cards, then there’s no doubt that we would all retire comfortably.

[Johnny630]

Originally Posted by raulus

If we could get that return on all of our cards, then there’s no doubt that we would all retire comfortably.

It seems the only way to make a gain like this is to spend big on an item or asset class that you have major conviction in for its long-term growth. It Could be anything, your business, real estate, stocks, crypto, or cards. This gentleman had the smarts and guts to pay the $50,0000 at the time. I believe at the time one recently had just sold, 91 or late 90 with Christie’s or Sotheby’s for $50,000 so I believe that’s how Rosen came up with his price to the gentleman for $50k.

[raulus]

Originally Posted by Johnny630

It seems the only way to make a gain like this is to spend big on an item or asset class that you have major conviction in for its long-term growth. It Could be anything, your business, real estate, stocks, crypto, or cards. This gentleman had the smarts and guts to pay the $50,0000 at the time. I believe at the time one recently had just sold, 91 or late 90 with Christie’s or Sotheby’s for $50,000 so I believe that’s how Rosen came up with his price to the gentleman for $50k.

Certainly the returns on this one item are pretty spectacular, even after taxes and auction fees. Even if the auction fees were priced at normal prices that you and I will pay on our items.

But do you really need to hit a home run every time to retire comfortably? My experience when you get both cheeks into every swing is that you're not going to connect every time.

Just for fun, let's say that this $50k was instead invested in a Roth back in 1991, with the S&P 500, reinvesting dividends.

For those of you who will observe that $50k is above the annual contribution limits for a Roth, then let's assume that he pulled $50k out of his Roth to buy it, since pulling cash out of your retirement account to buy cards was the original impetus for this string. For those of you who are tax historians and who will retort that Roths didn't exist until 1998, I guess we'll just have to enter the land of make-believe to attempt to compare apples to apples. Since we're all buying cards with after-tax dollars, and since Roths are available to us today, this seems like a reasonable comparison.

According to the returns that I'm showing for such an investment, the seller would have about $925K in that hypothetical Roth today, all of which would come out tax free.

Not the home run that he got from buying the 311 Mantle. But still a very nice return on investing $50k in a relatively boring asset class. And for most of us, I'm guessing that $925K in a Roth would put us well on the way towards retirement.

But by golly, if you've got the next Rosen Mantle, then go nuts and do whatever it takes to buy it.

[G1911]

This is a biased sampling predisposed to baseball cards, of course, and many have large investments into them that stand to gain from further growth that is promoted, but I’m a little surprised to see so many that think going all in on like this is a smart decision. It is going all in; if one is to the point that they are emptying 401K’s and IRA’s to pay for cards, they are not diversifying their portfolio. That’s an extreme step.

High end cards have skyrocketed since the opening of 2020. It’s fallen from the peak, but prices remain very high. Gambling your retirement that it will continue inexorably forward and continue to make huge percentage leaps is a very risky gamble. Retirement accounts are set up for very favorable taxation and stability, losing those tax benefits and taking the early withdrawal fees to invest in mass produced collectibles that are not set up for favorable taxation (if I sold a Mantle I’d owe close to 50% of my profit in taxes alone) is a titanic gamble. You don’t have to have your cards perform better than the stock market to profit from this, you have to beat it by a LOT.

One can gain a lot from large risk. Draining your retirement accounts to participate in the current collectibles fad is a large one. Whether it’s cards, crypto, beanie babies or GME, it can pay off big time. If I had bought into 52 Mantles and sold them now, or had bought more crypto in 2009, or drained my 401K to join the apes on WallStreetBets when they started the train on GME, I’d have made more than my index invested retirement accounts. There are also many such events where I would have gone broke if I followed the hype. Stocks may go up or down, but the market grows over time. If the market doesn’t grow over time, the US dollar collapses and your collectibles collapse too. Retirement accounts are set up favorably to enable responsibility and security for old age. I have a hard time seeing that risking a secure retirement in favor of going all the way in on baseball cards after a huge rush and pump is intelligent financial advice. Again, emptying retirement accounts to do it is very different from diversifying or putting some of one’s cash or income into it as a supplemental investment.

[HistoricNewspapers]

Originally Posted by G1911

This is a biased sampling predisposed to baseball cards, of course, and many have large investments into them that stand to gain from further growth that is promoted, but I’m a little surprised to see so many that think going all in on like this is a smart decision. It is going all in; if one is to the point that they are emptying 401K’s and IRA’s to pay for cards, they are not diversifying their portfolio. That’s an extreme step.

High end cards have skyrocketed since the opening of 2020. It’s fallen from the peak, but prices remain very high. Gambling your retirement that it will continue inexorably forward and continue to make huge percentage leaps is a very risky gamble. Retirement accounts are set up for very favorable taxation and stability, losing those tax benefits and taking the early withdrawal fees to invest in mass produced collectibles that are not set up for favorable taxation (if I sold a Mantle I’d owe close to 50% of my profit in taxes alone) is a titanic gamble. You don’t have to have your cards perform better than the stock market to profit from this, you have to beat it by a LOT.

One can gain a lot from large risk. Draining your retirement accounts to participate in the current collectibles fad is a large one. Whether it’s cards, crypto, beanie babies or GME, it can pay off big time. If I had bought into 52 Mantles and sold them now, or had bought more crypto in 2009, or drained my 401K to join the apes on WallStreetBets when they started the train on GME, I’d have made more than my index invested retirement accounts. There are also many such events where I would have gone broke if I followed the hype. Stocks may go up or down, but the market grows over time. If the market doesn’t grow over time, the US dollar collapses and your collectibles collapse too. Retirement accounts are set up favorably to enable responsibility and security for old age. I have a hard time seeing that risking a secure retirement in favor of going all the way in on baseball cards after a huge rush and pump is intelligent financial advice. Again, emptying retirement accounts to do it is very different from diversifying or putting some of one’s cash or income into it as a supplemental investment.

Good points.

If we took every baseball card and its prices in 1991 and tracked their value compared to now there may be just as many losers as winners.

Then you have to look at condition. People were buying vintage cards at NM to Mint prices back then when in reality 90% of those cards would be graded at 4-7.

For example, in the early 1990's, Eddie Murray RC's were going for $40-$50 and 90% of those were most likely in the 4-7 grade range.

So it really isn't fair to say that a PSA 10 Eddie Murray goes for 15K now and look how much money you would have made.

How many $40 Eddie Murray rookies were bought in 1991 that would now be $15 cards in their raw state, or $35 in PSA 5 condition(then when you minus grading fees, still $15-$20)? I would say the vast majority.

So in totality, the Murray RC, if viewed as a stock by looking at EVERY card, even if you include the handful of $15,000 PSA 10's that sold, that Eddie Murray RC stock may very well still be even or have gone down since then. $40 in 1991....and still a $40 stock in 2022 with no dividends ever paid.

That isn't even counting all the sets like 1990 Leaf that were $150-$300 sets in 1991-ish and are worth about $50 now.

Then you have the trash from the junk wax era that ALL lost big value.

Pre-war has done very well though compared to 1991. I would say it is up across the board in that segment.

[Mike D.]

I consider card collecting a hobby, not an investment per say.

That being said, it's likely a better financial investment than my other hobbies (going out to dinner, drinking beer, live music, travel, etc.), at least in terms of any long term financial payback.

Unless anyone wants to pay me to tell stories about that time I drank beer and saw that band after that really good dinner out...

[Bridwell]

I like the diversifying approach. I have real estate, 401k, IRA, savings, and baseball cards. The cards are not part of any of the other investments. I don't borrow from one category to fund another, even though that's allowed.

Watching the stock market drop lately makes me glad for that diversity. Prewar baseball cards have been steady in holding their value, while some cards have jumped up better than the other investments. It's hard to find another investment where something is worth 10x what I paid.

When it's time to sell, all will be subject to taxes for me. I'll sell gradually to fund retirement I suppose.

[bmattioli]

Ask this to any sane financial advisor..

[G1911]

Originally Posted by bmattioli

Ask this to any sane financial advisor..

You did in 7 words what it took me 3 paragraphs to get at. Brevity is best

[Peter_Spaeth]

Originally Posted by bmattioli

Ask this to any sane financial advisor..

Yes, but financial advisors are not necessarily that familiar with collectibles. A superb one I know is constantly surprised at prices I point out to him.