JoeTaxpayer

They say that when the shoeshine boy starts talking about stocks it’s a time to get out of the market. Last week, David Letterman offered his Top Ten List,

Top Ten Signs You Have a Bad Bank

1. Manager giggles whenever he says, “early withdrawal”
2. They made $2 million loan to the Hillary Clinton campaign
3. Most banks are backed by the FDIC; your bank is backed by KFC
4. Bank robbers leave with a sack of IOUs — that’s how bad things are, ladies and gentlemen
5. Loan officer will approve your mortgage only if you let him rub you
6. ATM looks suspiciously like a Ms. Pac-Man machine
7. Interest paid not in money, but in Saltines
8. They promise they’ll have your money if you come back after tonight’s Keno drawing
9. Instead of Andrew Jackson, their $20 bills have a picture of Tito Jackson
10. Teller asks, “How may I swindle you?”

Maybe this is the sign that we’ve reached the bottom in this crisis, I hope so.

Joe

written by JOE \\ tags: banks, david letterman, fdic, interest, loan, money, Mortgage, stocks, top ten list

I first wrote of this phenomenon last September in a post titled “Disappointing Returns“. In that post I cited data that reported that for the 20 years ended Dec. 31, 2006, the average stock fund investor earned a paltry 4.3 average annual compounded return compared to 11.8 percent for the Standard & Poor’s 500 index. Wow, that’s abysmal. These investors would have fared better by staying in CDs during that time. Last month (the June issue) in Smart Money magazine, I found this telling graph;

What we find is that investors don’t buy and hold. Not by a long shot. They pour money in just at the market is reaching a top, and then, just as the market reaches a short term low, they panic, and sell their funds. Thus the title of my post today.

Joe

written by JOE \\ tags: Finance, Investing, smart money magazine, stock fund, stocks

A great political / finance cartoon from last week’s Denver Post, it really speaks for itself.

Enjoy the weekend,
Joe

written by JOE \\ tags: Finance, interest, Investing, money, Retirement, stocks, Taxes, wealth

In a number of posts, I’ve referenced asset allocation. This week, with the collapse of Bear Stearns, let me remind you that putting all your eggs in one basket is inviting a visit from the black swan. To make matters worse, employees tend to load up on their own company stock, having unconscionable percentages of their 401(k) funds invested in the stock. So for these people, on the same day they find themselves unemployed, their life savings has just been trashed.

I understand the urge to invest ‘in what you know’, as if one can really know every aspect of the company for which they work. I also know that many firms have stock purchase plans where you are permitted to buy company shares at a discount. Lastly, 401(k) matching funds are often deposited as shares of the company stock. Resist this urge, and reduce your risk. If you can’t afford to watch your company stock go right to zero, you have too much. We all should have learned from the tech bubble to limit shares in any one stock (or sector, for that matter) to a small percentage. For many, it’s too late, just make sure you are not next.

Joe

written by JOE \\ tags: asset allocation, bear stearns, diversification, Finance, money, Retirement, stocks

It was September that I last wrote about this. Yesterday, we were up 3.71% on the S&P 500, as you can see, 1320.65, up 47.28, the largest single day gain in nearly 5 years. I could go on a bit to talk about yesterday and the markets of today and next week, but instead, let’s look at 1986-96. Why? Because it contained both the crash of ‘87 and the recession of 1990-91.

During this period, the market still managed to more than triple. I’m sure there were those who were scared out of stocks in 1987, but let’s remember one thing about 1987; the S&P 500 returned 5.7% that year. I recall a conversation I had with a friend on Aug 25, 1987 (I remember because it was the day after his birthday and I took him to lunch). The market had gone up quite a bit and he asked me what I thought. I told him that in the short term anything could happen, but if he sold then who knew when would be the right time to get back in? Those who averaged in over the prior five or so years were still well ahead, even after the crash. By focusing on the long term and not getting into the habit of buying high and selling low, you can achieve your goals and sleep at night.
And at SmartMoney - “Bull Markets Return When You Least Expect” by James Stewart

JOE

written by JOE \\ tags: Finance, Investing, stocks, volatility

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.
JOE

written by JOE \\ tags: capital gains, Investing, stocks, Taxes

Last month I commented on the volatility that struck the market. I stated that “this recent blip will look just like any other, meaningless in the long term.” I stand by that remark. Today we closed at 1529 on the S&P, just 1.7% off the high reached in mid-July.

If you had the clairvoyance to sell at 1555, and buy back in at the bottom of the August dip, you are either a liar, or one of the few people who can do this. Truth is, few people can get it right twice, selling, and then buying back at a lower price. It’s a sucker’s game I choose to avoid.

JOE

written by JOE \\ tags: Investing, S&P, stocks, volatility