Investing 102

[Bucketlist2012]

Originally Posted by Woody

Ray, I have some imput on "risk" that may or may not be of interest to you.
There are complex models that have been set up in an attempt to measure risk. If you are interested, Google "risk and capital asset pricing models". (You will probably need a finance backround to understand them).


Another method of measuring risk is Beta. Beta is shown in Google Finance and Yahoo in the financial summaries of the stock. A Beta of 1.0 means that the stock moves in direct correlation to the overall stock market. A Beta less than 1.0 means the stock moves less than the overall market and may be less risky, while a Beta greater than 1.0 indicates the stock moves more than the overall market and may be more risky. The things that you have to understand about Beta is that it is based on past performance. Also, Beta is only a measure of the stock price movement. It does not take into account the impact of dividends. In other words you could have a very steady stock (low beta), that pays a large dividend and it could still have above average risk due to the potential for the dividend to decrease.

Along with using Greg's explanation about looking at the dividend (Generally the higher the return, the greater the risk), you can simply look at a historical chart and analyze the magnitude of the price moves. Riskier stocks will tend to move more than conservative stocks. In other words, the riskier stocks will tend to have the biggest price swings (on a percentage basis). They will have greater percentage increases when the market is going up and greater percentage declines when the market is going down.
Just remember these are generalizations.

As you probably know, the general rule of thumb is higher return potential = higher risk. I believe that is how this thread started out. How to get a higher return than what is currently offered by a "safe" low risk money market fund. Not much risk of a money market fund declining, but not much potential return (Currently 1.0% or less).

Just trying to bring another persective to the discussion. Hopefully, I have not overcomplicated the issuse.

Woody... No overcomplication at all...Honest, opinions, and knowledge from you.Thanks..

This is an investment thread meant to get us to participate and share...Thanks

again, I am pleasantly surprised that this thread has a life of it's own...every other site i have been on and talked about money, the subject shifts to spending money , and never making it...True they are car sites but man, you would think they would care more....

Oh well....I know what is up, and Investing is what is up...

[ErikLS2]

Pretty good jobs report just came out this morning. I'm far from an economist but to me this is very good news. It was much higher than the so called "experts" predicted and most measured areas saw an increase. Some prior months were revised up as well.

If this continues you can plan on seeing Obama back and I'm not sure interest rates will remain low as long as they had initially planned either. I don't have any big things to buy anytime soon so I say bring on the inflation. That's probably inevitable anyway with all this QE we've been doing to keep the ship afloat.

Here's the report if you want to read it:

http://www.bls.gov/news.release/empsit.nr0.htm

[LS1-IROC]

So the wife and I met with Chuck last night. Was overall a good experience. Anyhow...we started talking about capitol gains and the current rate of 15%. He felt strongly that by this time next year we will be looking at an increase in that rate. Any thoughts about that?

[GregWeld]

Originally Posted by LS1-IROC

So the wife and I met with Chuck last night. Was overall a good experience. Anyhow...we started talking about capitol gains and the current rate of 15%. He felt strongly that by this time next year we will be looking at an increase in that rate. Any thoughts about that?

Yep --- When that happens you'll see two things -- less trading so people will go back to buy and hold -- OR -- the rats leave the ship and buy Muni bonds which will drive the prices up therefore the yields down.

Either way - the government loses.

They -- the 535 idiots that actually run the country - don't understand that 15% of everything is better than 35% of nothing.

[GregWeld]

I should have explained the MUNI BOND yield to tax relationship as they are directly linked.

Depending on what tax bracket someone is in - you can calculate what TAX FREE return you need to EQUAL a taxable return.

So as taxes go UP on dividends or LTCG's -- then the return required to equal that NET goes down.

So in Washington state -- we have no income tax -- and if I can buy a TAX FREE BOND paying 5% --- I'd have to get a TAXABLE return @ 35% income tax rate of 7.69%

Right now -- with dividends taxed at only 15% that taxable dividend only needs to be 5.56%

Since it's "riskier" and harder to make that 7.69% income in the stock market -- why would a person bother -- when they could just buy 5% tax free munis -- be guaranteed to get 100% of their capital back at "X" date...

[GregWeld]

Okay -- so let's examine the STOCK MARKET and DIVIDENDS if they change the tax rate -- now that you've digested the BONDS vs STOCKs and taxable / non taxable return quality.

DIVIDENDS are paid as a dollar amount... i.e., they are declared in an AMOUNT not a PERCENTAGE. SO..... as the stock FALLS in price -- the PERCENTAGE of the dividend return INCREASES.

Now -- if I have to make a 7.69% taxable dividend --- to equal a 5% tax free bond -- what has to happen to get there?? STOCK PRICES HAVE TO FALL...

The oldest saying on Wall Street --- "as interest rates RISE - stock prices DIE"

Ignore the relationship at your own peril.

[GregWeld]

Here's an actual chart using the DIVIDEND tax rate of 15%



TAX-FREE
YIELD TAXABLE-EQUIVALENT YIELD @ 15% tax rate
1.00% 1.18%
1.50% 1.76%
2.00% 2.35%
2.50% 2.94%
3.00% 3.53%
3.50% 4.12%
4.00% 4.71%
4.50% 5.29%
5.00% 5.88%
5.50% 6.47%
6.00% 7.06%
6.50% 7.65%
7.00% 8.24%
7.50% 8.82%

[Bucketlist2012]

Originally Posted by GregWeld

Yep --- When that happens you'll see two things -- less trading so people will go back to buy and hold -- OR -- the rats leave the ship and buy Muni bonds which will drive the prices up therefore the yields down.

Either way - the government loses.

They -- the 535 idiots that actually run the country - don't understand that 15% of everything is better than 35% of nothing.

Great Line.... I use it all the time....535 People are running 300 Million people into the ground...

Amazing.. but back to Greg's point of no listening to the Noise, and make the Investments for you and the Long Term.. Not the short term, or the left or right...YOUR money....Forget about the 535 and the way they work..it is your world that counts..

[Bucketlist2012]

Originally Posted by ErikLS2

Pretty good jobs report just came out this morning. I'm far from an economist but to me this is very good news. It was much higher than the so called "experts" predicted and most measured areas saw an increase. Some prior months were revised up as well.

If this continues you can plan on seeing Obama back and I'm not sure interest rates will remain low as long as they had initially planned either. I don't have any big things to buy anytime soon so I say bring on the inflation. That's probably inevitable anyway with all this QE we've been doing to keep the ship afloat.

Here's the report if you want to read it:

http://www.bls.gov/news.release/empsit.nr0.htm

I believe that they will cook the numbers for the election...And yes, they will keep propping up the economy with spending to keep the economy going through 2012..

So, if you have positioned yourself well with your debt, and your investments..

Inflation will help you... People have had plenty of time to get ready..

I don't see the government in Left or right...That is Politics,,the exact noise that they want you to buy into, and argue about.. I see the Fiscal policy, the domestic and foreign policies, as Investment tools, nothing else..

Keeps me from having to talk politics and religion with anyone..

But the FACTS are , do you see the spending continue, ala Home mortgage and student loan bailouts, just for starters, i could go on...

If you see more spending, then there is money on the table waiting to be made..

But boy that gets into Investing/Speculating. I do not day trade, but i do formulate a yearly game plan, as well as mid and long term plans..

I need Greg's input, I know his returns are stellar , so i may be spinning my wheels some, .

[hifi875]

Originally Posted by ErikLS2

Pretty good jobs report just came out this morning. I'm far from an economist but to me this is very good news. It was much higher than the so called "experts" predicted and most measured areas saw an increase. Some prior months were revised up as well.

If this continues you can plan on seeing Obama back and I'm not sure interest rates will remain low as long as they had initially planned either. I don't have any big things to buy anytime soon so I say bring on the inflation. That's probably inevitable anyway with all this QE we've been doing to keep the ship afloat.

Here's the report if you want to read it:

http://www.bls.gov/news.release/empsit.nr0.htm

Our government has a peculiar propensity to come out with ambitious unemployment numbers only to come out with corrections 3 or 4 months later. it has occurred many times since obummer has taken office.