Investing for Owner Operators

[GMAN]

I would invest as much as you could. The amount isn't as important as the consistency. I have known people who have a fixed amount they invest and save out of every paycheck. I have also known of others who invest a flat percentage. If you want to use a percentage, I would probably try to invest 10-15% out of every check. Even a smaller amount would grow over time. You might be surprised at how much money you will have in only a year or two.

[no_worries]

I think saving money for retirement is a waste of time. The best way to retire is to create a business that brings in PASSIVE INCOME so that you don't have to work. As long as the income you receive is greater than your expenses, you can consider yourself retired. My personal plan is to have a couple of paid-off trucks with trailers, a couple of drivers, and find someone to manage the biz. Most wealthy people invest in 1) own business; and 2) real estate.

A reasonable retirement plan is part of any decent pay package. If you're running your business at a profit, you should be able to provide yourself a competitive pay package without sacrificing reinvestment in the business. As for real estate, some people like the fact that they own something they can touch, and that's fine. But over the long term, with very few exceptions, the stock market has yielded the same or better returns.

[tracer]

what percentage of pay should one invest.. :?: :?: ..being a young (eh hmm) 47 what would be acceptable..... :idea: :idea: :arrow: :arrow: :?: :?: :!: 8)

The carrier I'm hauling for in my own truck has been deducting $150 from every pay (we are paid every 2 weeks) for the reserve fund. I hardly noticed the loss, but my reserve fund had grown to $3,000 in no time!

I'd invest 5% of every paycheque plus the entire amount over the certain number. Let's say you know that when you're paid $3,000 in 2 weeks, all your needs are taken care of and then some. So, I'd set aside 5% of anything under 3 grand. but if I were paid $3,500 I'd take ... $500 (the amount over the $3,000 limit).

Even small amounts over time will add up. The important thing is to do it.

[tracer]

...over the long term, with very few exceptions, the stock market has yielded the same or better returns.

the problem with stocks is the principal is not guaranteed. you can lose EVERYTHING.

with real estate, if you buy smart (not too much), you will rarely lose the money. i read of one truck driver who was making 40 grand a year but decided to buy a $700k house with no money down. when the crisis hit the fan and interest rates shot up, the house was taken by the bank because the guy couldn't afford the monthly payments. that is dumb.

i just bought my first condo (1 bedroom apt in a 1972 building; 635 sq.ft.) near Toronto, ON and my monthly payments are ... 400 bucks plus 285 fees (incl. electricity). i called the bank and asked them to increase the payments to 600 bucks (300 bucks every 2 weeks). this will save me a ton of money on interest and cut the loan term by probably 1/3. this is money well invested, in my opinion.

[no_worries]

the problem with stocks is the principal is not guaranteed. you can lose EVERYTHING.

If you're well diversified, the odds of your account dwindling to zero is about the same as your real estate ending up worthless. And it still doesn't change the fact that over the long term real estate does not yield a higher return on average. There's nothing wrong with real estate investing. It's a more conservative, higher cash-flow investment and a lot of people make a ton of money doing it. Just as they do in stocks and bonds.

[tweety bird]

Roth vs. Regular IRA. It boils down to one question: In retirement, will your taxable income be higher or lower than it is now? If you're paying 20% in taxes now and you expect to only be paying 15% after retirement, it makes no sense to have money in a Roth.

That's not all there is to it. The benefit of the roth is that you won't pay taxes on the growth. Meaning that if you expect your money to double every 7 years and you invested 5000 to start with (I think that's the current annual max- I don't do a roth so I'm not on top of this), after 21 years that 5000 would become 40,000. You probably paid a higher tax rate on what you invested- 5000- but you're not paying it on the 40,000 that it grew into.

It's early and I haven't had any coffee, so if my math is off, I apologize. It's the concept I'm going for, not the application.

I have a roth but I haven't invested in it for a few years. I'm not sure I trust the government to leave the roths alone. I'm sure that someone down the road will punish the roth investors and tell them they'll have to pay taxes on their money when they take it out after all because Billbo over here didn't bother to invest and it's just not fair for me to have retirement money when he doesn't.

[tweety bird]

I would definitely suggest that an owner operator have a safety net fund that is accessible WITHOUT PENALTIES in case of emergency- say that unexpected break down or an accident (yeah, insurance is great, but sometimes you have to pay the shop to get your truck rolling and argue with the insurance company later- I've found that you always lose money on an insurance deal).

The most expensive break down we had was $17,000. That was really painful but we were able to pay it and get down the road. If possible, I'd suggest having a minimum of $20k in a money market fund. The money is invested so it gets a higher rate of return than, say, a plain old savings account. But you can get your hands on it when you need it.

If you can invest on top of that, great. If not, then I suggest you don't just focus on putting money into SEPs or IRAs where you get penalized if you need to use it. Do a little of both. If you survive trucking without having to touch that $20k, fantastic. Put it somewhere it will get a higher yield. But I'll be surprised if you don't have to touch it :wink:

GMAN gives good advice. Develop a strategy and stick to it.

[no_worries]

That's not all there is to it. The benefit of the roth is that you won't pay taxes on the growth. Meaning that if you expect your money to double every 7 years and you invested 5000 to start with (I think that's the current annual max- I don't do a roth so I'm not on top of this), after 21 years that 5000 would become 40,000. You probably paid a higher tax rate on what you invested- 5000- but you're not paying it on the 40,000 that it grew into.

While that's true, you're neglecting the fact that by contributing to a Roth initially, you're giving up additional principal in the amount that you pay in tax. If you took that additional amount and invested it, it would theoretically equal the Roth benefit of untaxed growth. When faced with equal returns, we're back to the question being decided by the relative impact when the tax is assessed.

[Colts Fan]

I would take a look at one of T. Rowe Price's target retirement fund. You just click on the year you expect to retire and they take care of the diversification and risk. The closer you get to retirement the more conservative your portfolio becomes.

You can invest monthly in the fund, as little as $50 I believe. By putting money in month to month you can take advantage of dollar cost averaging. Even when the market gets sour you are able to buy shares cheap.

[mdf1576]

[quote="no_worries"]

That's not all there is to it. The benefit of the roth is that you won't pay taxes on the growth. Meaning that if you expect your money to double every 7 years and you invested 5000 to start with (I think that's the current annual max- I don't do a roth so I'm not on top of this), after 21 years that 5000 would become 40,000. You probably paid a higher tax rate on what you invested- 5000- but you're not paying it on the 40,000 that it grew into.

There is no tax on the distributions for a Roth IRA. So if the account is worth 1 mil you,ve invested 200k, you come out waay ahead. Its the only way to go. Why do you think the govt restricts how much you can put in each year.

[mike3fan]

There is no tax on the distributions for a Roth IRA. So if the account is worth 1 mil you,ve invested 200k, you come out waay ahead. Its the only way to go. Why do you think the govt restricts how much you can put in each year.

You assume that they will not tax the Roth,at one time Social Security income wasn't taxed,so counting on that money to be tax free in the future may not be all that wise.

I am gonna diversify as much as I can and I think both could be good but for different reasons,and yes I am gonna do a target retirement fund from Vanguard.

[no_worries]

There is no tax on the distributions for a Roth IRA. So if the account is worth 1 mil you,ve invested 200k, you come out waay ahead. Its the only way to go.

That's not my quote, but I assume that you're responding to me.

You're missing a key component in your math. Namely, the additional principal that you sacrifice to taxes every time you make a Roth contribution. If you pay 25% in tax how much do you need to earn to make that $5000 Roth contribution? $6667. So you have two choices; invest your after tax income in a Roth ($5000) or your pretax income in a tax deferred vehicle ($6667). Assuming all variable are constant, including pre- and post-retirement tax rates, your return will be exactly the same.

As far as...

Why do you think the govt restricts how much you can put in each year.

...that same contribution limit applies to a standard IRA, so the rationale doesn't apply.