Investing 102

[GrabberGT]

Originally Posted by GregWeld

With the Obama "win" (to me it's like he backed into it AGAIN - with barely half in favor) we wake up to a sell off in the market. No surprise here. So if you're wondering what should you do.... My advice would be to just sit back and watch for buys.

Remember -- if you're invested for the long haul - and that's a KEY STATEMENT -- then you will see your investments not be in the green column some times. BUT if you're invested in dividend stocks then they're going to keep paying - and they're going to be re-invested.... and over a 15 - 20 - 30 year timeframe you will be rewarded regardless of the taxes etc that people will stew over in the short term.

If you're living off the dividends - as I do - I sold half off all my holdings this morning. I have HUGE gains so want to lock in the long term capital gains at 15%. I will have a large pool of cash to begin to redeploy when I have more certainty in how my gains and income will be treated. Please remember that my holdings (that I use for this thread) are pretty large. Positions are in the 15 or 20 or 40 thousands of SHARES.... these are large numbers so if I sell half of a 40,000 share position - I still have 20,000 shares of "XXX". Again - I'm not trying to say "look at me" - I'm trying to show you and share with you all "my" thinking. It's easy for me to pull cash and profit out of the market temporarily and still have income and gain/loss and keep on truckin'. I still have a large Muni Bond portfolio which pays tax free income and I haven't done any moves there. I would - but the income that laddered bond portfolio pays - couldn't be re-invested in anything that's "as safe" and produces that 4% tax free. But as they mature (annually) I won't re-invest them in lower rate bonds...

So here's where the Obama "anti wealth" / "anti success" / "tax and spend" stance has a DIRECT AFFECT on someone like me.

I have an opportunity to invest in a 244 unit apartment complex in Tucson, AZ.... it would pay about 7%... but I WON'T make that commitment (which means I won't invest in it) because that investment doesn't pan out IF I'm going to pay 30 or 40% income taxes on the income stream. My guess is that the deal doesn't get done. Therefore the seller won't have a sale - and the potential investors will just sit on their cash because they're "uncertain". The sales people won't get the commissions so won't pay any taxes... and down the bowl the water flows.

That's why the USA NEEDS investments/investors and people that CREATE income. When you have income - you spend it - which creates income for others - and then every time that buck changes hands - the government takes a little cut of it. No spending - no changing hands - no taxes created. Real simple.

Originally Posted by XLexusTech

Not to get political but since al of my friends are pissed about the election outcome I am scratching my head as to why... On purely a finical basis if you income is sub 200K (like most of us) why would one say Obama over Romney or Visa versa? Asked another way if you were making 199K in income would your investment above still be a loser?

I'd also like more info here. I've been tossing this around for a while regarding the proposed tax hike on Capital gains and such and am curious why you would choose not to make that investment. Receiving a dividend check regardless of size as a result of your investment is still more money in your pocket. Just not as much now that you're paying 30% tax rather than 15%. Im not saying its right or wrong or that Im in favor of tax hikes but just trying to wrap my head around it.

[toy71camaro]

I'm GUESSING based off what i read in Greg's comment, that he's not going to tie up that amount of cash in an investment that only is going to return 7%, and then be taxed 30-40% of that money, netting him a 3-4% return. I'm guessing there will likely be a better ROI to be had out there than that 3-4% for the amount of money to be tied up for that amount of time.

But i could be totally wrong. thats just how I understood it. lol

[GregWeld]

Originally Posted by GrabberGT

I'd also like more info here. I've been tossing this around for a while regarding the proposed tax hike on Capital gains and such and am curious why you would choose not to make that investment. Receiving a dividend check regardless of size as a result of your investment is still more money in your pocket. Just not as much now that you're paying 30% tax rather than 15%. Im not saying its right or wrong or that Im in favor of tax hikes but just trying to wrap my head around it.

Property investments - and in particular INVESTMENT/COMMERCIAL properties are valued solely based on the return. The return is weighed against other returns offered elsewhere. It's just math. The only real way to invest in these types of properties is the combination of the cash flow and the increase in value when sold - so just like stocks - it's the TOTAL RETURN.

So two things come into play here. These are multi million dollar investments.... 7% return tied up for 10 years or so looks great if you think interest rates and returns would be "sub" that. But if we are going to tax these types of investments at ordinary income rates - then you have to take 40% off that 7%... and if we go to sell - and normal interest rates are lets say 5% 10 years from now - then the selling price of the property would be less than we paid... because the sales price will be based off the income the property can produce.

Now - if over the holding period we can raise rental rates - fine - then there's more cash flow etc - but then that would also mean that we're most likely seeing INFLATION... that inflation rate baked into the final sales price to another investor group would also affect the asking price.

Basically -- I'm making a 10 year "bet" on interest rates - property values etc. Since I'm not certain about much of that.... then I'll choose NOT to make that bet and stay more liquid rather than lock up a couple million into an investment that is NOT liquid at all and that I can't call the shots on because I'm not the managing partner - I'm only along for the ride.

[GrabberGT]

Originally Posted by GregWeld

Property investments - and in particular INVESTMENT/COMMERCIAL properties are valued solely based on the return. The return is weighed against other returns offered elsewhere. It's just math. The only real way to invest in these types of properties is the combination of the cash flow and the increase in value when sold - so just like stocks - it's the TOTAL RETURN.

So two things come into play here. These are multi million dollar investments.... 7% return tied up for 10 years or so looks great if you think interest rates and returns would be "sub" that. But if we are going to tax these types of investments at ordinary income rates - then you have to take 40% off that 7%... and if we go to sell - and normal interest rates are lets say 5% 10 years from now - then the selling price of the property would be less than we paid... because the sales price will be based off the income the property can produce.

Now - if over the holding period we can raise rental rates - fine - then there's more cash flow etc - but then that would also mean that we're most likely seeing INFLATION... that inflation rate baked into the final sales price to another investor group would also affect the asking price.

Basically -- I'm making a 10 year "bet" on interest rates - property values etc. Since I'm not certain about much of that.... then I'll choose NOT to make that bet and stay more liquid rather than lock up a couple million into an investment that is NOT liquid at all and that I can't call the shots on because I'm not the managing partner - I'm only along for the ride.

I think I follow. And now compound that with your other example and people have lost out on job opportunities. Now would you have the same outlook on purchasing 20K shares of XYZ div. paying stock or is that business as usually assuming all other factors remains the same.

[XLexusTech]

Yes the big guys wont have the ability to buy a X Million dollar real estate investment... that really wont effect the home inspector for example. who makes all of his $$ form the middle class buyers who need a mortgage...

What I am learning here is that the ones that are affected believe in the ole Trickle down effect... and all I am saying is..
I don't need an hand out.. don't want to wait for the therotitical trickle down stuff.. let me get my own and don't tax the hell out of me...
What i think I am learning is the threshold for that is 200K and that covers 95% (from the bureau of taxation's website) of the US population including me
:-)

[realcoray]

Originally Posted by XLexusTech

Yes the big guys wont have the ability to buy a X Million dollar real estate investment... that really wont effect the home inspector for example. who makes all of his $$ form the middle class buyers who need a mortgage...

What I am learning here is that the ones that are affected believe in the ole Trickle down effect... and all I am saying is..
I don't need an hand out.. don't want to wait for the therotitical trickle down stuff.. let me get my own and don't tax the hell out of me...
What i think I am learning is the threshold for that is 200K and that covers 95% (from the bureau of taxation's website) of the US population including me
:-)

In terms of tax impact for those of us making under 200-250k, I wouldn't anticipate any notable change unless you are into real estate, where the capital gain taxes going up could impact you (you'd be making a profit, but keeping less of it).

Keep in mind that if actual tax rates go up to levels from the 90s, it's still progressive meaning that your taxes would go up a few percentage points for income above a certain level. Let's say I make 205k and the tax rate for income over 200k goes up by 2%. I pay just 2% more on the 5k as a result of that increase.

Obviously in the case of some of these types of gains, or your situation the actual increase may be higher and for investment purposes you have options. Greg has talked about municiple bonds which may be an option since they are less/not exposed to these shifts. Chances are though that many other people will be thinking the same thing and the yields may drop in turn making it effectively the same as it was in terms of actual yield compared to other bonds.

Also, to keep things in perspective note that tax rates right now are historically low. Just about 50 years ago, the top tax rate was > 90%.

[XLexusTech]

Originally Posted by realcoray

In terms of tax impact for those of us making under 200-250k, I wouldn't anticipate any notable change unless you are into real estate, where the capital gain taxes going up could impact you (you'd be making a profit, but keeping less of it).

Keep in mind that if actual tax rates go up to levels from the 90s, it's still progressive meaning that your taxes would go up a few percentage points for income above a certain level. Let's say I make 205k and the tax rate for income over 200k goes up by 2%. I pay just 2% more on the 5k as a result of that increase.

Obviously in the case of some of these types of gains, or your situation the actual increase may be higher and for investment purposes you have options. Greg has talked about municiple bonds which may be an option since they are less/not exposed to these shifts. Chances are though that many other people will be thinking the same thing and the yields may drop in turn making it effectively the same as it was in terms of actual yield compared to other bonds.

Also, to keep things in perspective note that tax rates right now are historically low. Just about 50 years ago, the top tax rate was > 90%.

Yes that basically what i was getting at... purely from a tax perspective this is a better outcome for 95% of the population.. So why is everyone crying about the taxes that come form Romney losing.. confused...

[Bucketlist2012]

Originally Posted by XLexusTech

Yes that basically what i was getting at... purely from a tax perspective this is a better outcome for 95% of the population.. So why is everyone crying about the taxes that come form Romney losing.. confused...

Dividend stocks taxed from 15% to at least 25% or more ? Not too confusing at all...

Or if they go from 15% to Income tax rates of ???? That is the problem...Or at least one of the many problems...

[realcoray]

Originally Posted by XLexusTech

Yes that basically what i was getting at... purely from a tax perspective this is a better outcome for 95% of the population.. So why is everyone crying about the taxes that come form Romney losing.. confused...

If you believe that the tax money will just be thrown into an incinerator (or given to poorer people), you might just dislike the idea of higher taxes even if it doesn't impact you.

The reality is that whoever won, chances are taxes on the higher earners would have to increase. You can't cut your way out of debt without tremendous economic issues (see: Greece), and you can't tax your way out either and both sides fundementally know this. Expect a balanced package of cuts and tax increases, none of which is drastic, but some of which may affect you in one way or another.

[GregWeld]

Originally Posted by GrabberGT

I think I follow. And now compound that with your other example and people have lost out on job opportunities. Now would you have the same outlook on purchasing 20K shares of XYZ div. paying stock or is that business as usually assuming all other factors remains the same.

Well the MAJOR difference in stocks vs hard assets is that stocks are liquid. I can change that (stocks) investment with a few keystrokes... with a commercial building I have marketing time - commission costs - marketing costs... and I'm a hostage to what the prevailing market is -- and what my PARTNERS want to do. With stocks or bonds -- it's just me -- and $8.95 for a buy and a sale... whether it's $500 or $5,000,000....