Taking money out of retirement funds to purchase cards

[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.

[BobC]

Great points by a lot of people, especially Nicolo/raulus. He's right on the money in regard to the various tax implications. It is definitely nice to have another CPA/taxperson on the forum that gets it, and so I'm not the lone voice talking many times. LOL

As Nicolo already opined, I would also not recommend pulling money out of retirement accounts, be they 401Ks, IRAs, or Roth IRAs, to go out to buy cards as investments. The tax costs and potential hits to retirement savings can be brutal. Granted, the Rosen/Mantle example is an out of the park home run example of how a card investment would well be worth it, but for every potential deal/investment like that, how many more are there that don't even come close, or could end up in a losing situation? Just think back to the junk wax era, and a possible repeat with all these modern collectors of the shiny new stuff.

But as another poster also mentioned, you have to look at each individual person's own unique situation and tax/retirement position before making such a decision also, along with their age, states/cities they get taxed in, and a myriad of other factors. Still, I would not think it makes sense to ever pull money from any type of retirement account just to buy a card. For many of us, myself included, I did not buy cards with the initial intention of looking at them as retirement assets. I figured it was a hobby, and if one day I could basically get back out of it what I had put in, I would be happy, As we've all seen though, especially with the recent surges in card values, those us that have been collecting for years have the somewhat pleasant result in that our collections have increased in value to the point where it is pretty much impossible to not treat them as an additional retirement/asset class now to some extent. As such, I personally think of the pre-war/vintage cards, especially of HOFs and superstars, as sort of the blue-chip investments on the stock market side of investing. And the shiny new stuff is more like the speculative investments that may, or may not, hold up and retain their value over the longer term, let alone giving their owners decent returns.

Having said that, if you are in a position to acquire a "white whale" card you may not see again for years, and/or otherwise cannot afford to just write a check from existing available funds for, I guess it can't hurt to review one's current retirement situation and investments and see if it would be possible to either borrow or pull-out funds from retirement accounts to make that special acquisition. As long as it looks like it will not negatively affect one's overall retirement planning and position. If one were doing it strictly for investment purposes though, I would not suggest pulling retirement funds out to simply make such an alternative investment. And I would be sure to try and calculate any potential tax or other related direct costs of pulling/borrowing such funds out of my retirement account(s), and factor that into the overall cost(s) I would spend to acquire that "white whale" item. Taking those additional costs into consideration may be that little extra deterrent many need to convince them not to do the loan/withdrawal from their retirement funds in the first place, even if it is a "white whale' item.

In any event, I would definitely not suggest ever taking money out of a Roth IRA account for such an investment as in cards. especially if there is any alternative source available. Taking a non-taxable investment and turning into a taxable investment to me is like adding insult to injury. LOL

I am wondering if at some future date, someone attempts to get items such as cards declared as a true investment asset/class, and pushes to possibly have them considered as an allowable retirement investment in say self-directed IRAs. I can already see some players in the industry, such as some of the current Vault operators, in the not too distant future possibly trying to enable people to fractionally invest in certain blue-chip vintage cards (T206 Wagners, T206 Cobbs, Goudey Ruths, '52 Topps Mantles, etc.) and maybe even assist them in setting up their own self-directed IRAs for them to do so. We've already seen and discussed how some of these Vault operators are offering people the ability to take loans/margin on their vault holdings, just like investment firms do with people's stock accounts. How big of a leap do you think it would be for these same Vault operators to then push the idea of possibly looking at cards as an actual type of retirement investing asset as well? Annual IRA contribution limits ($6,000/yr under 50, $7,000/yr over 49 in 2022) are much lower than annual 401K contribution limits. But get enough like-minded people and start adding their IRA account balances up, and I can see a Vault operator acting on their behalf to maybe buy that Wagner/Cobb/Mantle they otherwise couldn't afford individually. That way you not only wouldn't have to worry about taking money out of one of your retirement accounts to make such a card investment purchase. And for the Vault operator behind such a concept, they could actually promote the idea that the IRA contribution could possibly end up being tax deductible, based on a person's own specific tax and retirement investing situation.

We've joked about it before here on the Net54 forum, but what if all the members did get together and kick in some money to then go out and purchase a card(s) that none of us would likely ever be able to afford on our own? I've owned fractional interests in things before, like a thoroughbred racehorse, so why not the same with say a T206 Wagner, or high-grade '52 Topps Mantle? And then take it a step further and try to get it as a retirement account asset. To my knowledge, that would not be allowable right now, but things do seem to be changing a lot as we move forward.

[BobC]

Double post.