Investing for Owner Operators
 

with all this stimulating talk of profits,I am wondering what you guys do or what you would do as far as investing for the future/retirement?

I have been reading alot lately about index funds and am leaning that way.But I am largely oblivious to financial planning,any thoughts,not on my stupidity but on investing 8)

In todays environment it is very tough to invest.

Mutual funds are usually good, but unfortunately they usually have a large portion of financials in there.

There's one overriding truism when it comes to investing for retirement; the sooner the better. Compounding makes time your biggest asset.

A myriad of studies have shown that a simple basket of diversified low-cost index funds and minimal activity, is your best bet. There are a ton of books that deal with different approaches to this strategy. If you just want to get a feel, try listening to Bob Brinker. He was on ABC Talk but Sirius yanked it. I think it might still be on XM.

A good retirement plan is not any more complex than starting early, sticking to it, and minimizing risk.

Ok that confirms what I have been reading,only problem is the starting early part,I only have 25 years before I turn 68.

the book I'm reading right now is The Smartest 401(k) Book you'll Ever Read http://www.amazon.com/Smartest-401k-...1690167&sr=8-1

Look into roth IRA's. In todays market. NO tax on distributions at retirement age. for no risk investing do a certificate IRA for around 5% return.

25 years is still a long time. Remember, as someone who's self-employed, you have some vehicles that allow greater contributions than just a standard IRA. And once we get through this current mess, maybe we'll see some accelerated growth :lol:

The Roth tradeoff: No tax on distributions but I also believe no write off now. I'm sure someone will clean it up if I've messed it up.

I guess I'm gonna need one of those fancy pants advisors to help with all this :cry:

Money put in a Roth is after tax money.

IRA money is tax deductible, but not exempt from self employment tax.

Don't waste your money if you can avoid it. You're a smart guy, you can find the basic info (which is all 90% of the people need) pretty easily. You need to know two basic things.

1) What type of account to set up
2) How to invest in that account

If you can't afford to set aside more than $5000/year right now, keep it simple and go with a regular or Roth IRA. Go to Vanguard or Fidelity, their website will walk you through the setup. In fact, those sites have a lot of good information on the subject. Even if all you did was open an IRA and plunk your $5000 into a total stock market index or a money market, that's a good start. You can always adjust as you learn more.

HD's right. The great thing is that you can always move money from a standard IRA to a Roth later. So if you really need the deduction now, make the IRA contribution. Then maybe down the road you'll have a year where your taxable income is down for whatever reason and the tax ramifications make sense to convert all or part to a Roth (assuming the rules stay the same).

yeah thanks I have been all over that Vanguard site lately,really good info there,I want to just set something up that I can have taken out of my checking account every week and I think I have that part figured out.I think the Roth is the better deal,but I also want to get going on some of those index funds too.

I wish Steve would give me some of his fortune so I could get into the DFA fund,c'mon Steve all it takes is a min of 100k....

This is a fantastic way to get started for the newbie investor. This way enables you to obtain a basic understanding of the " nuts and bolts " of investing., without a costly investment adviser. But as you are able to invest more, seek the advice of a Pro. We have been with Lincoln Financial for the past 10 years and are quite happy with our broker.

That depends on what you're philosophy on the market is (once you've gained an understanding) and whether or not you believe a managed portfolio can consistently beat the market.

But in the end...
...that is what matters most. The last thing you want to be doing is stressing out over your nest egg all the time.

I am wondering if it would be overkill to have a SEP-IRA and a Roth IRA?

My thinking is that I could theoretically invest up to 25% of my profits in the SEP-IRA which would be a tax deduction,with taxes due upon withdraws,and the the Roth I could invest up to $5k after tax money and then have some no taxed money mixed in with the other at the end.Thoughts?

I would still do a portfolio of low cost index funds.or better yet a retirement target fund.

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.

With some analysis and planning you can some to a pretty reasonable estimation for retirement. The hardest part of the picture is not knowing what the tax and regulation picture will look like in 20+ years. Most planners take the position that, regardless of what happens down the road, having a chunk of income that isn't taxable is a good thing. They advocate maxing out your Roth first before moving to the next vehicle, such as a SEP. If you expect your earnings to be fairly consistent and you want the simplest approach, this is tough to beat.

I like that strategy I mentioned above because our taxable income fluctuates quite a bit. Fluctuations occur due to tax issues, like Rev mentioned in the other thread. For us, they also occur due to a variable work schedule. Some years we work steadily throughout the year. We've also been known to take an entire year off. In the higher income years we contribute to a standard IRA type (IRA, SEP, or Solo 401(k)) for the tax break. In years with lower taxable income, we make the contributions to the Roth, but also shift funds from the standard into the Roth. There is a pretty decent benefit from doing it this way but it can get a little complicated and requires both strong knowledge of your personal tax situation and a bit more planning.

In any case, there's no downside to having both a standard IRA and a Roth open to choose from.

I had a SEP-IRA before we incorporated and I really liked it. Of course you can have the same investments in any of them just a question of tax consequences. I highly recommend Vanguard DBS. You can invest in stocks,bonds,cd's, or mutual funds. You can invest in Vguard funds or a lot of other families @ noload.

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.

You know trucking, right? Why not invest in something you know?

I do my investing through Fidelity and Edward Jones.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

[quote="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. 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.

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...

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