JoeTaxpayer

In 2008, the (long term) capital gains rates dropped. If you are in the 10% or 15% marginal bracket, your capital gain rate drops from 5% in 2007 to 0% (yes, zero!) from 2008-2010. For those in the 25% bracket or higher, the rate remains 15%. In 2011, these rates revert back to the pre-2003 levels of 10%/20%. See the charts at Fairmark to understand what bracket you fall into. As always, one should not let the tax tail wag the investing dog, it’s just good to know how these laws impact your investments. If this advice sounds familiar, I first suggested this back in January. Between the growth in readership I’ve enjoyed since then (up fivefold) and the risk this benefit may be short lived, I thought it worth repeating.
JOE

written by JOE \\ tags: capital gains, capital gains rates, Fairmark, Investing, investment, irs, long term capital gains rates, tax

I’m paraphrasing, of course from Shakespeare’s,“The fault, dear Brutus, lies not in our stars, but in ourselves if we are underlings.”
In a recent story, covered by ABC as “Movement to Scrap 401(k)s Gains Traction” it seems that instead of (a) prompting more disclosure regarding the high fees with an eye toward reduction, (b) education about asset allocation (as in “how to not lose 100% of your savings in an Enron-style implosion”, and (c) a bit of counselling on proper planning, amount that needs to saved, etc, they are proposing we scrap the system altogether.
The current state in which we find the financial markets doesn’t call for the abolition of retirement planning as we know it. In the old days, whenever they were, a defined benefit pension would have provided a nice income at retirement, with social security adding to supplement. As people stayed at a given job for fewer years, the pension system made less sense. The 401(k) on the other hand, was a great replacement vehicle. Those frequently changing jobs had the choice of moving their prior account to the new employer or to roll the account to an IRA.

There are bits I picked up from the article that I agree with:
Encourage/force disclosure and lower fees
Mandatory 5% minimum deposit and 5% company match
An offering of one fund that invests in the inflation+3% as the plan proposes

This would satisfy much of what this democratic proposal offers, only it doesn’t tie the hand of investors who wish to be more aggressive and it doesn’t create a socialistic investment pool. The article doesn’t address the source of the inflation+3% investment, where exactly does one get this return? How will the government guarantee this, and who will make the investment decisions on our behalf?

I’ll just say “no, thanks” to this one.

Joe

written by JOE \\ tags: 401(k), asset allocation, democratic proposal, income, inflation, investment, IRA, pension system, Retirement, Savings, Social Security

Unfortunately, the details are still not completely available yet, but I do have one thought. The market is currently in panic mode and a number of investment products seem to have no liquidity, in other words, no one knows how to price mortgage backed securities and so the prices are not really reflecting their true value.
I suspect that we will shortly discover that as true values are established, the taxpayer will actually come out ahead in this deal, not just from liquidity coming back into the market, but the government (and therefore the taxpayer) will see a profit in these takeovers.
Just my thoughts.
Joe

written by JOE \\ tags: Dollar, investment, liquidity, Mortgage, mortgage backed securities, panic, tax

Loaded up on your company stock? I hope not. You see, one of the basic mistakes I see in many clients’ investment portfolios is the (too) large amount of their own company stock, especially in their 401(k) accounts. You might think that you’re close enough to the business that you will get out before the stock would ever tank. If so, you are one of the select few. Your ongoing employment and stream of income is tied to your job, to protect yourself, you should consider limiting your company stock to no more than 5% of your portfolio’s value. Compare one blue chip company, Motorola, to the S&P since the beginning of the decade:

Now, to be fair, there are countless stocks that have kept up with or exceeded the S&P, but this is an example of one not so fortunate. S&P down about 10% (up, if you include dividends), but MOT down close to 80%. (Note, I added EMC as well, down 70% for the decade to offer another example.)

Joe

written by JOE \\ tags: 401(k), company stock, dividends, income, investment, S&P, stocks

Last week, the Q2 ‘08 number was revised to 3.3% up from 1.9%. This may be attributed to the stimulus package, or an increase in exports due to the lower dollar, but it’s good news and far from the depression some were forecasting.

Perhaps we’ll avoid a recession altogether, and Q4 ‘07 will be the only quarter of contraction. Time will tell.

Joe

written by JOE \\ tags: Finance, gdp, Investing, investment, recession

I enjoy the public radio show This American Life, hosted by Ira Glass, and listen to the podcast, but having fallen a bit behind, I just heard the May 9th show, titled “The Giant Pool of Money.”

It offers yet one more view on the subprime mess, this story centers around a lot of investment money looking for a home. The episode is no longer available as a podcast, but may still be streamed on line. It’s worth listening to. (And I will add it to my list of subprime links page.)

Joe

written by JOE \\ tags: investment, Ira Glass, money, Mortgage, Subprime, this american life