Investing 102

[AMSOILGUY]

Thanks. That helps me understand it better. Not sure if it's something I would chase. Its all about comfort and that seems like a lot of variables to consider.

[GregWeld]

Originally Posted by AMSOILGUY

Thanks. That helps me understand it better. Not sure if it's something I would chase. Its all about comfort and that seems like a lot of variables to consider.

If it's too complicated to understand the business you're thinking about being a partner in (as that is what buying the stock makes you - a partner).... stay away from it (whatever "it" is). There are far too many big great companies that you can invest in that are "easy" to click with. Why make life complicated.


I have used several companies over the years to "park" cash.... a couple ETF's (JNK and HYG and PFF)... GE.... NLY....KO... MO.... PM... AT&T and VZ. These are all "steady" shares that pay decent dividends. What I find about JNK and HYG and PFF is that they pay MONTHLY so I don't have to park for an entire quarter in order to pick up the dividend. But I'm talking about what would be quite large amounts of money for "most" folks reading this. As an example -- I hold over 1MM in EACH JNK and PFF currently (30,000 shares of each). Those two pay me over 10 grand per month... but --- big BUTT --- doesn't take much of a change when you're holding that many shares and you can lose way more than you're getting. This is okay for someone like me -- because I'm watching this stuff DAILY -- and perhaps multiple times per day. These are not buy and forget "investments"... they're "I have some cash I don't know what to do with right now and want to make some pocket money" buys.

This is why - throughout this thread I've preached to invest in best of breed stocks that a guy knows what the company does... That the average guy can buy with confidence and not need to check the price 8 times a day.... (I've got nothing better to do).

[Stuart Adams]

Hey Greg, great thread.

Ive got a generalized question. Tax on dividends goes to personal income rates, then what u see happening?

Thanks

[GregWeld]

Originally Posted by Stuart Adams

Hey Greg, great thread.

Ive got a generalized question. Tax on dividends goes to personal income rates, then what u see happening?

Thanks

Oh boy.... a loaded question that really is a tough one. For me personally -- it would change what I do to a certain degree as that would take a lot of disposable income away.

But, I need to make money on my money. How am I going to do that? Stocks? Bonds? Real estate?

The tax rate comes into play when BOND Yields have normalized returns (not the ultra low FED induced rates we have seen lately). That's when you look to tax free bonds - because you can calculate the tax free rate of return vs the taxable rate of some other investment. The problem with Bonds is you don't have the capital growth... so there is actual "risk" there that people fail to calculate.

Stocks have survived - and paid dividends - thru all manor of tax "schemes" by the government. Ditto real estate. Ditto bonds. So it's not a zero sum game regardless of what the tax scheme is. People still need to invest their money "somewhere".

Here's the way I look at it..... If I make 100,000 and I have to pay 35% - I still kept 65,000 for me. Obviously I like keeping 80,000 of the 100... and one can discuss the benefits (or not) of that free cash flowing back to the economy vs flowing back to Uncle Sam.

But the short response is -- I think it depends on how many other things are going in the economy. A big change would be a definite shock to the economy. Ala interest rates rising too quickly. It would really depend on how the change would roll in. If they gradually raised rates - people would have time to make the proper adjustments.

I remember when (1991) the Gov decided they were going to tax "luxury". So they put a 10% penalty tax on Boats and Furs and high dollar cars etc. It cost 60,000 jobs in the boat building industry in the US and put the fur industry virtually out of business (when was the last time you saw a woman wearing a fur or saw a fur store). But we know the "government" is not the best and brightest... That tax was repealed two years later because of the damage it did. Personally, I think raising the tax rate to ordinary income tax rates would do similar damage to the economy.

As usual -- it's a thorny issue. Many people believe the "rich" should be taxed - but what happens is that the man in the street pays a far heavier price when they loose their jobs.

On a personal note --- what people don't see is how many people make a living off the "rich" guy. The building of my home here in Sun Valley will keep some people employed for over two years. If I was taxed at ordinary rates - I'd have built a smaller project - or not built at all! I could have bought some other place (only the real estate agents would have gotten any income). That would have affected an awful lot of people here in the valley. The excavator - the cement guys - the framers - the plumbers - the electricians - the HVAC guys - the roofers - the sheet rockers - the painters... NONE of those guys would have made a dime off this project - and therefore neither would they pay ordinary income taxes on their earnings. So they can tax ONE guy (me) or they can collect taxes on a 100 people. I go out and have a meal regardless of the taxes I pay. But think about the 100 people. Do they go out or stay home? Do they buy some new equipment or not? Do they buy a new snow machine or have to sell the old one to pay the rent?


Like I said -- taxes are a thorny issue, and need careful consideration of the cause and effects. What sounds good on paper and in theory - can have debilitating effects down the chain.

[WSSix]

Originally Posted by GregWeld

On a personal note --- what people don't see is how many people make a living off the "rich" guy. The building of my home here in Sun Valley will keep some people employed for over two years. If I was taxed at ordinary rates - I'd have built a smaller project - or not built at all! I could have bought some other place (only the real estate agents would have gotten any income). That would have affected an awful lot of people here in the valley. The excavator - the cement guys - the framers - the plumbers - the electricians - the HVAC guys - the roofers - the sheet rockers - the painters... NONE of those guys would have made a dime off this project - and therefore neither would they pay ordinary income taxes on their earnings. So they can tax ONE guy (me) or they can collect taxes on a 100 people. I go out and have a meal regardless of the taxes I pay. But think about the 100 people. Do they go out or stay home? Do they buy some new equipment or not? Do they buy a new snow machine or have to sell the old one to pay the rent?

For any one that may be wondering, that is what trickle down economics means.

I remember the luxury tax of 91 even though I was only 11 and far from luxury. I remember it because twice a day I would cross the bridge into and out of Thunderbolt, Georgia and get to see the yachts and sailboats that were being worked on in the town. Seemed like in one day they disappeared and the company folded. It took a very long time for another business to open shop and be successful in that area. There was another shop in Savannah that I didn't get to see that also lost a lot of business due to that tax.
I too can see something similar happening should dividends become ordinary income tax. Only the harm will be much more broad. Let's hope no one gets any dumb ideas about changing the tax code and punishing retirement savings.

[Stuart Adams]

Originally Posted by GregWeld

Oh boy.... a loaded question that really is a tough one. For me personally -- it would change what I do to a certain degree as that would take a lot of disposable income away.

But, I need to make money on my money. How am I going to do that? Stocks? Bonds? Real estate?

The tax rate comes into play when BOND Yields have normalized returns (not the ultra low FED induced rates we have seen lately). That's when you look to tax free bonds - because you can calculate the tax free rate of return vs the taxable rate of some other investment. The problem with Bonds is you don't have the capital growth... so there is actual "risk" there that people fail to calculate.

Stocks have survived - and paid dividends - thru all manor of tax "schemes" by the government. Ditto real estate. Ditto bonds. So it's not a zero sum game regardless of what the tax scheme is. People still need to invest their money "somewhere".

Here's the way I look at it..... If I make 100,000 and I have to pay 35% - I still kept 65,000 for me. Obviously I like keeping 80,000 of the 100... and one can discuss the benefits (or not) of that free cash flowing back to the economy vs flowing back to Uncle Sam.

But the short response is -- I think it depends on how many other things are going in the economy. A big change would be a definite shock to the economy. Ala interest rates rising too quickly. It would really depend on how the change would roll in. If they gradually raised rates - people would have time to make the proper adjustments.

I remember when (1991) the Gov decided they were going to tax "luxury". So they put a 10% penalty tax on Boats and Furs and high dollar cars etc. It cost 60,000 jobs in the boat building industry in the US and put the fur industry virtually out of business (when was the last time you saw a woman wearing a fur or saw a fur store). But we know the "government" is not the best and brightest... That tax was repealed two years later because of the damage it did. Personally, I think raising the tax rate to ordinary income tax rates would do similar damage to the economy.

As usual -- it's a thorny issue. Many people believe the "rich" should be taxed - but what happens is that the man in the street pays a far heavier price when they loose their jobs.

On a personal note --- what people don't see is how many people make a living off the "rich" guy. The building of my home here in Sun Valley will keep some people employed for over two years. If I was taxed at ordinary rates - I'd have built a smaller project - or not built at all! I could have bought some other place (only the real estate agents would have gotten any income). That would have affected an awful lot of people here in the valley. The excavator - the cement guys - the framers - the plumbers - the electricians - the HVAC guys - the roofers - the sheet rockers - the painters... NONE of those guys would have made a dime off this project - and therefore neither would they pay ordinary income taxes on their earnings. So they can tax ONE guy (me) or they can collect taxes on a 100 people. I go out and have a meal regardless of the taxes I pay. But think about the 100 people. Do they go out or stay home? Do they buy some new equipment or not? Do they buy a new snow machine or have to sell the old one to pay the rent?


Like I said -- taxes are a thorny issue, and need careful consideration of the cause and effects. What sounds good on paper and in theory - can have debilitating effects down the chain.

Thanks. A patient mentioned that Obama was talking about that, it got my attention, and not in a good way. You da man!

[GregWeld]

Originally Posted by Stuart Adams

Thanks. A patient mentioned that Obama was talking about that, it got my attention, and not in a good way. You da man!

Obama would mostly likely love to issue an "executive order" to mandate taking 75% of my income so he can "redistribute" it to someone that hasn't held a job in their lifetime.... That would most certainly be very helpful to the economy.... for a day... until the recipient was broke again the next day and back on the free food wagon.

[toy71camaro]

Wow. MSFT and AMZN on the move today! Sheesh.