Saving for Retirement with More Than Mutual Funds

This guest post from Randy is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.

For the past twenty years, I’ve saved a significant percentage of my income due to career growth, semi-frugal living, and not having any offspring. I’m now 55 years old. Because I’ve made some non-traditional choices, I want to share how I’ve grown my wealth.

Each year, I allocated part of my savings to traditional tax-deferred 401(k) and IRA accounts, using mutual funds (stocks) from Fidelity, Janus, Vanguard, etc. The Roth IRA didn’t exist yet, or I made too much money when they did exist. I also allocated a large part of my savings to after-tax, taxable investments, likewise using the same or similar mutual funds.

Lately I’ve been emphasizing after-tax investments (non-Roth, just plain old taxable investments) even more. Why?

• If the investments perform well, capital gains taxes paid on after-tax investments will lower my total long-term tax bill compared to traditional IRAs where all dollars when withdrawn are treated as regular income.
• You can (and I do) own real estate in self-directed IRAs (both traditional and Roth), but owning real estate in an IRA is kind of a pain in the butt. When you do this, the IRS requires that you deal with a third party through a custodial company.
• Having non-Roth, after-tax investments gives you huge flexibility in life to invest in opportunities with much greater upside potential than mutual funds have. My personal examples include funding my own business startups (plural), making sizable down payments on rental properties when they were devalued three years ago, buying subdivision lots in resort areas with cash, and paying off a mortgage on a nice 3400-square-foot home in twelve years.

Obviously you want to use employer matches in 401(k), IRA, and similar programs to their fullest extent. But beyond that, each person should look critically at how she invests the rest. For many people, maxing out tax-deferred investing is best since they don’t have the willpower to invest the remainder and leave it invested. Others who do have willpower but don’t have entrepreneurial tendencies should do the same.

However, for some people — people like me — who have the willpower and the inclination to spend time and energy researching and managing alternative investments, traditional options tend to be highly overrated. If you can make a better return with alternative investments, then that is what you should do.

Unfortunately, both advertising dollars and news-media hype have convinced most Americans to follow a highly overrated route. Why would this be? Because that’s how the financial industry makes its money. There’s no real conspiracy here; it’s just the financial industry trying to obtain and keep customers. When individuals invest in their own businesses or small real-estate transactions, there’s no money being made by the mutual fund companies, the investment banks, the financial advisors, the financial columnists, the financial television show hosts, and so on.

Here’s another aspect of the issue: When you’re in your twenties and thirties, you don’t even realize that you might want these non-401(k), non-IRA dollars available to give you the flexibility in your forties and fifties to try some other ways of investing. Like most people, I kept those after-tax non-Roth dollars in mutual funds for many years, but when the opportunities came to start businesses, buy rental houses, etc., I was ready, willing, and able.

As a final note, one of my subdivision lots (in a self-directed IRA) did lose a great percentage of its value during 2008 and 2009. My solution was to purchase a second nearby lot with IRA money, then have both lots appraised and convert them both to a Roth IRA account at the lower appraised values. By the way, I have the cash in hand to pay the taxes due upon conversion to Roth because not all of my dollars are locked up in IRAs.

Saving for retirement with traditional methods is a fine thing, but it’s not the only way to get rich slowly. If you’re willing to think outside the financial box, you can find other ways to diversify your investments.

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Polandia: Prospective Member of Parliament Sensual Campaign Through the Internet

They say that sex sells, so there is no surprise that with an upcoming election, there would be a candidate or two willing to court controversy in order to gain attention for some votes. Katarzyna Lenart, a 23 year old political science student looking to be elected in Lublin, has raised some eyebrows this week thanks to her Youtube video, in which she partially strips off on camera. The video is only 40 seconds long , but had gathered 122,000 views on Youtube by last Thursday (October 6th) and since then has jumped to over 410,000 views today (Saturday October 8th).



To summarise the clip for those who may be uncomfortable with such viewing: the scene opens with Katarzyna Lenart sitting in a dark suit, white shirt and black tie combination while seated in a swivel chair. The phrase SLD Electoral Committee (Komitet Wyborczy SLD) appears in the bottom left of the screen. Next, she evokes the spirit of Sharon Stone by uncrossing her legs provocatively (but without the ‘extras’ on show in Basic Instinct). She drags off her tie and launches it towards the camera, and then begins caressing her hair seductively. Then, swinging the chair around, she stands up with her back to the viewers, pushing the chir backwards, and her mini-striptease begins. The jacket drops first to leave her glancing over her shoulder. Then she unbuttons her shirt and it too falls to reveal her pink bra underneath. (Some colour experts might even call it shocking pink). But the video does not finish there… She then unhooks her bra – at which point a big ‘Censored’ sign lands on screen to protect her ‘modesty’ – and she walks towards the screen. The scene darkens and finishes with a caption saying “Do you want more? Vote SLD! Together we can do more” – “Chcesz więcej? Głosuj na SLD. Tylko my możemy zrobić więcej” po polsku.

 However, the reaction has been mixed at best. She has needed to defend the stunt saying in an interview with Gazeta Wyborcza. “I thought it was time to cause a stir,” she said. “My campaign targets young people, and young people are only interested in controversial stuff, unfortunately,” according to the newspaper. “I don’t think it was vulgar or obscene. You can hardly see anything,” she added, not that it had taken guts to strip. However, if those externally are criticizing her it could be shrugged off, but further complaint came from within the SLD, with Tomasz Kalita, a spokesperson for the party, saying that it did not give the right image. It also makes you wonder if she gets elected – what happens next? And would this become a party policy. You would hope not, given as the majority of representatives would be middle aged men, and with them less skin on show would be plenty. Thus, they say that there is no such thing as bad publicity, but in this case it is hard to see how this shows Ms. Lenart in a positive way (apart from among the 18-30 male voting group).
 It seems to show some naivety with regards to understanding the political system. In general, this Youtube video will be seen by those Internet-savvy individuals, generally aged below 40. However, ironically that will be the age group that tends to have least interest in politics and voting. Had Ms. Lenart more sense and focus on being elected, she would probably have spent more time shaking hands of babcias and dziadeks in Lublin and listening to their stories in order to gain votes. When they look at the electoral list, they will just see another name. If her photo would be seen by those around retirement age, they may think “Oh, she looks a bit like my grandaughter”, but it’s doubtful that would get her elected. Thus it would seem she would need to spend more time in her political studies class and appearing less on Youtube should she maintain hopes for a political career.

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Global Economic Prospects—June 2011

Washington, June 7, 2011—As they put the financial crisis behind them, developing countries need to focus on tackling country-specific challenges such as achieving balanced growth through structural reforms, coping with inflationary pressures, and dealing with high commodity prices, the World Bank says in its June 2011 edition of Global Economic Prospects.
In contrast, prospects for high-income countries and many of Europe's developing countries remain clouded by crisis-related problems such as high unemployment, household and banking-sector budget consolidation, and concerns over fiscal sustainability among other factors.
The World Bank projects that as developing countries reach full capacity, growth will slow from 7.3 percent in 2010 to around 6.3 percent each year from 2011-2013. High-income countries will see growth slow from 2.7 percent in 2010 to 2.2 percent in 2011 before picking up to 2.7 percent and 2.6 percent in 2012 and 2013 respectively.
"Globally, GDP Measured at 2005 market prices and exchange rates (or 4.8 percent in 2010, 4.3 percent in 2011, 4.4 percent in 2012, and 4.5 percent in 2013 when aggregated using Purchasing Power Parity weights). is expected to grow 3.2 percent in 2011 before edging up to 3.6 percent in 2012," said Justin Yifu Lin, the World Bank's Chief Economist and Senior Vice President for Development Economics. "But further increases in already high oil and food prices could significantly curb economic growth and hurt the poor." 


More from the report...

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