3 Things 12-16-24

Thing One

Making A Case For Bitcoin?

While doing an interview about the virtues of bitcoin with Jim Cramer, Saifedean Ammous, the author of The Bitcoin Standard, pointed out some harsh realities about what happens to the cash we hold in a relatively short amount of time. See an excerpt below:

“..Gold stores value well because it’s very difficult to increase the supply of gold. Every year the supply of gold goes up but only around one and a half to two percent. So that means the people who hold it end up doing very well for themselves. And people who hold other things don’t do well. And that is true for gold and that’s what made gold money for the whole world practically at the beginning of the twentieth century. Then governments come about and they use their debt as money. And since then, the average over the last sixty years or so - between 1962 and 2020 - the average fiat currency grew in supply at around fourteen percent per year. So we went from one and a half percent to fourteen percent - about a tenfold increase in the supply growth rate. And fourteen percent per year means that on average you lose half the value that’s stored in money over five years. So you lose half of the value of your money over five years. That’s the average experience. Of course, some currencies are better than the average like the US dollar and the Euro. They only increase at around seven or eight percent per year. Some currencies are worse. They increase at twenty, fifty, maybe one hundred percent sometimes per year. But on average, it’s just continuously increasing in supply so its value declines. And because its value declines, that incentivizes everybody to: A) Not save and B) Take on a lot of debt. And that’s why everybody is in debt and that’s what bitcoin fixes. If we go back to having a hard money where money is no longer debt, we no longer need to be monetizing debt. We no longer need to get everybody to become a debt slave in order for us to have a form of money. We have a form of money [bitcoin] that is just a commodoty that doesn’t require anybody to get into debt for it…”

We’d like to point out that, at the 7% increase in money supply rate cited in the article, the US dollar loses 25% of its value in 5 years rather than the 50% world average over the same period. Still, at that rate, the value of your money get cut in half every 10 years - if you are not investing it.

That said, this is not an argument for bitcoin (or against it for that matter) but it is most definitely an argument for the kind of investing frequently discussed in this newsletter.

Thing Two

The Millionaire Club Keeps Growing

Fidelity Investments recently reported that the number 401K and IRA millionaires in America had reached 962,000 with 544,000 of those in 401k plans and the other 418,000 in IRAs. While they pointed out that there is nothing magical about reaching the million-dollar milestone, and they further emphasized that most people don’t get there, they did share the following tips for those that do want to set that number (and beyond) as a goal. See the details below from an article in USA Today by Daniel de Visé:

“…Don’t wait to enroll in a 401(k)

Only about half of American households have retirement accounts, federal data shows.

The sooner you enroll in a 401(k), financial advisors say, the better chance you’ll become a 401(k) millionaire one day.

“The number-one rule of retirement savings is to start early,” said Peter Lazaroff, a certified financial planner in St. Louis.

A good goal: Max out your employer match

Most 401(k) plans offer a match: The employer matches some or all of the funds paid into the retirement account by the worker. In a typical model, the employer matches half of every dollar a worker contributes, up to a maximum of 6% of the worker’s pay.

A match is free money, but many Americans don’t claim it.

“When you don’t take your match, you are leaving part of your employer compensation on the table,”

The ultimate goal: Max out your retirement contributions

If you have enough wiggle room in your budget, planners say, consider pushing your retirement savings to the legal limit.

For IRAs, the annual contribution limit for 2024 is $7,000, or $8,000 for anyone 50 or older. For 401(k) plans, the maximum employee contribution is $23,000, or $30,500 for people 50 and over.

Contribution limits go up in 2025, with even higher "catch-up" limits available for people 60 to 63.

“The goal for every retirement saver should eventually be to try to max out your 401(k),”

Don’t cash out your 401(k) if you leave a job

Research shows workers often cash out low-value 401(k) accounts when they leave a company, potentially losing thousands of dollars of compounded interest over time.

If you leave a job, experts say, make sure to “roll over” your 401(k), either into an IRA account or a new 401(k) at your next job.

In 2022, a consortium of private retirement plan providers announced a collaboration to boost the “portability” of small retirement accounts.

Don’t cash out if the market drops

In a bear market, some retirement savers panic and sell, hoping to protect their savings from further losses.

But if you want to be a 401(k) millionaire, experts say, you’d be wise to ride out those slumps.

While a downturn might lower the value of your retirement account, it doesn’t change the number of stock or mutual fund shares you own.

Think of those shares as hens. In lean times, the hens lose weight. But you still have the same number of hens. Someday, they will fatten up again.

Don’t ever raid your 401(k), if you can help it

The 401(k) is designed to reward those who save for retirement and penalize those who withdraw the money early.

Early withdrawal, typically before age 59 ½, triggers an additional tax equal to 10% of the sum. If you are paying a 15% tax rate and make an early withdrawal, you effectively lose 25% of the money before you spend a dime.

There are exceptions, such as for a first-time home purchase or household emergency, which allow you to pay only ordinary income tax on the amount withdrawn. But the goal, with 401(k)s, is to keep the money in the account until you retire.

Keep saving. Don’t stop.

As we said, the typical Fidelity 401(k) millionaire has been building retirement savings for about 26 years.

Don’t be daunted by that figure. If you start saving in your early 20s, and you retire in your early 60s, you can easily string together 30 years of 401(k) savings.

Let's say you earn $50,000. You contribute 10% to a 401(k), starting at age 25, with your employer offering the standard 50% match, described above. Assuming a 7% annual rate of return, and a yearly 2% raise, your 401(k) balance will reach $1 million around the time you turn 55, according to a Bankrate calculator.

“It’s the old saying,” Shamrell said. “Put time in the market. Don’t try to time the market.”

Thing Three

Just A Thought

"Let come what comes, let go what goes. See what remains." - Ramana Maharshi