Post Race!

Yeah, that's kind of true, but the reality is that we are missing LOADS of trains all the time. A buddy of mine who is seriously gold crazy was telling me about how great it would be if he had put $1000 into gold back in the 80s. Of course, had he put that $1000 into Apple stock at the same time, it would have been worth FAR more by 2000 than the gold would be today. Had he sold that gold and bought bitcoin early on, it would be worth billions.

If we knew the future, we'd all be rich. I don't see much point in pining for the road not taken...unless you haven't taken any roads at all. THEN you have something to regret.

If you are going to invest in anything more than an index fund, the safest way of doing it is to dollar cost average.

For example, if someone wanted to get into bitcoin today then I'd tell them to take an amount that they can spend every {pay period increment} without realizing it's gone then have it automatically purchase that amount of bitcoin.

The trick is to be disciplined. Having it automatically take out every week is the easy part. Convincing yourself to "ride the waves" is the hard part.

For example, my own crypto portfolio (almost all bitcoin) dropped 26% since October. But I've had very similar drops and much higher jumps before.

If I would have stopped at the first big drop then I would have pulled out after 9 months and if I would have withdrawn after the first big jump then I would have pulled out after 2 years. Both of those situations would have made me worse off than I am now.

But every week when I get paid, it automatically takes out a very small amount. I don't notice that money missing and it purchases something that I don't plan on touching for a very long time.

Yeah, that's a good way to do it. I was doing automatic withdrawals as well.

Knowing the future is an even better way to invest, though.

I can tell the future. In exactly 2 minutes, it will be 9:45 CST.

From what I can tell "the rich" don't buy and sell gold. Instead they buy it in bulk, have it stored by private vault companies like Brinks. To avoid paying taxes on gains they never sell it, but take out collateralized loans against the gold.

These loans replace selling, and paying them off replaces rebuying to replenish their reserves.

Utterly impractical for normal people.

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Originally Posted by dilettante

...Utterly impractical for normal people.

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Not entirely if you shift the asset.

Imagine you purchase a whole life policy and intentionally overfund it (without triggering a MEC).

The cash value grows at a guaranteed rate (even if you don't overfund it) and if you purchase the policy from a mutual company that pays dividends then you can apply it towards additional coverage.

When the cash value accumulates enough, you can take a loan against the policy. These loans aren't taxed and your cash value of the policy continues to grow as if it were never touched.

You can either repay it later or just allow the policy payout to be reduced when you die.

Basically, you get a non-taxable money that is not tied up in the stock market with high liquidity.

The downside is that you have to have a longer time preference and you almost always have inflation hazard, i.e. this approach won't work for someone older than say 45. Mayyyyyyybe 50 if you aggressively fund it.

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Originally Posted by dday9

Imagine you purchase a whole life policy and intentionally overfund it (without triggering a MEC).

The cash value grows at a guaranteed rate (even if you don't overfund it) and if you purchase the policy from a mutual company that pays dividends then you can apply it towards additional coverage.

When the cash value accumulates enough, you can take a loan against the policy. These loans aren't taxed and your cash value of the policy continues to grow as if it were never touched.

You can either repay it later or just allow the policy payout to be reduced when you die.

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I can't get the math to work.

You take out a loan and use money you already have as collateral. That costs you the cost of getting the loan and the interest.

Why over fund the life insurance just to take out a loan??

The cash value is guaranteed to grow and dividends help. The loan you take is not taxable and the cash value continues to grow.

The key difference when you take out the loan is that you're not borrowing your own money, you're borrowing against the policy using the cash value essentially as collateral.

Long term, you come out ahead. But if you need liquidity within the first 10 years, it doesn't make sense. The approach is basically a conservative plan that gives you predictable growth without the tax hit.

For example, I'm 34 years old. Let's say that I do yearly contributions at $15k. The amount I paid would be $225k in 15 years with the cash value being ~$200k. If when I'm 50 I take a loan at $80k, while I may lose about 1% per year, my cash value continues to grow off the $~200k.

At that point I would have $80k, tax free and its liquid (there is a loan process, but the underwriting is laughable).

Take the same example, but I stop after 5 years. The amount paid would be $75k and the cash value would be much less (probably around $37.5k). At this time horizon, the cash value is too low, and I would need to make risky investments just to make up the difference.

The logical follow up is "why use a whole life policy instead of a high-yield savings".

It really comes down to tax laws. The growth on the whole life policy is not taxed whereas it is on savings. The interest rates in savings can also change whereas you're locked in with whole life policies. Assume a high-yield savings gives you the same yield as a whole life policy, when you go to use it, you'd be hit with a >30% tax hit and the after-tax return is less than if you simply borrow against the whole life policy.

With a longer time preference, that tax hit hurts more in a savings.

Plus, you have to consider that if you withdraw against a savings account, that drops the account balance which then affects future earned interest whereas borrowing against a life policy doesn't touch the accumulated cash value.

Long story short, if you want a conservative asset that produces a smaller growth but provides you with non-taxable liquidity similar to what dilettante suggested with "buying gold in bulk, never selling it to avoid taxable income, and using it as collateral to get liquidity".

It's something similar that the layman can leverage. Both aren't without risks, for example it costs money to store gold (exponentially more depending on the quantity) whereas with the whole life approach you're locked into funding it. And both have specific hazards, like the price of gold could drop or inflation could eat away at the guaranteed interest earned on your whole life policy.

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The key difference when you take out the loan is that you're not borrowing your own money, you're borrowing against the policy using the cash value essentially as collateral.

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The tipping point seem to be, will the expenses associated with the loan less than what the life insurance policy growth will be for the same amount of money.

So it's a good method if the loan interest is 4% and the policy growth is 6%.

Like I said earlier, at the end of the day, it's just another long-term conservative financial strategy.

I'm being honest, probably the better option would be to just dollar cost average into an index fund. They beat out 99% of all managed funds and you don't try to time the market. The biggest downfall is that you have a much higher tax risk when you go to redeem it.

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Assume a high-yield savings gives you the same yield as a whole life policy, when you go to use it, you'd be hit with a >30% tax hit

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I'm no where near that tax bracket. :)