Investing 102

[Sieg]

Originally Posted by GregWeld

Great.... if you want to confuse the hell out of people.

.......but I did say "a few." Sorry

[GregWeld]

Originally Posted by Sieg

.......but I did say "a few." Sorry

It's good info.... and it's something that I actually try to look at when selecting a particular stock over another in the same sector. I want to see that increasing dividend payout over time.

My reasoning is far simpler though... and isn't mathematical or hard to understand in THEORY..... I want the dividend to try to keep up with INFLATION. Simple as that.

That's why I'll repeatedly try to beat into you guys heads... real simple "Investing 102":

Good name that you know and understand their business

Good chart that marches higher over a long time frame

Good dividend

Reinvest the dividend (if you're not already retired)

Dividends increasing over a long period of time

Diversify until you have at least 15 names

The old KISS principal.

[CRCRFT78]

Not to go completely off topic but what do some of you recommend when it comes to saving for your children? What types of accounts are some of you using?

[WSSix]

Totally agree and understand Greg. We'll keep it simple here because you're right in that choosing a good stock matters more than doing nothing. The debate over which of the good ones is best can come at another time.

[GregWeld]

Originally Posted by CRCRFT78

Not to go completely off topic but what do some of you recommend when it comes to saving for your children? What types of accounts are some of you using?

I'm going to jump in here (as usual?) because we just have been having this discussion at our house (re-doing wills and estate planning before year end)...

So just some quicky thoughts - and things our attorneys and trust managers put in our heads to think about.

You can "GIFT" to your children (anyone actually) $13,000 per.... so Husband and wife - can EACH gift 13K to a child (or anyone) per year. So that's 26K per couple to an individual. TAX FREE - No paperwork no nothing....

It is "best" to gift them assets that have "appreciated".... so --- you bought McDonalds 10 years ago - it's up 300%.... rather than you selling some - and giving the "money" as a gift -- it's best to just transfer "13K" worth of the asset to them. You will not have the long term capital tax (15%) AND the receiver gets what is called the "stepped up cost basis" -- so their "gain" if any is from the date you transferred the asset. So let's say you bought at $100 - it's not worth $300.... the "kid" gets the stock and their "cost" for tax purposes is the $300. They can sell it the next day and have no tax liability... (if it stayed at $300). So you escaped taxes on your gain - and they have no gain so pay no taxes. Sweet!

The other "discussion" we had about "kiddies" is that you can't help THEM if you're not in a position to help yourself. So you need to save and get financially "fit" yourself FIRST.... Which - frankly - was good advice from the trustees. In other words it's impossible to help someone else unless you're in good shape yourself. A guy that can't swim can't help someone that is drowning.

Many people PREFER forced savings accounts -- 529's (educational trust accounts) etc. Or you can set up a ROTH IRA (but that is for THEIR RETIREMENT) -- and remember this.... at 21 - whatever you "gave" them in various accounts - is THEIRS. So that works great if you have great kids -- not so great if they've fallen prey to a bad spouse or "you name it" bad things.

I had accounts in both kids names with us as joint owners - put assets in them for years - then drained 'em for college expenses - took the last of the dough out a month before they turned 21 and just "recaptured it" back into our accounts. I get stuck with paying the bills one way or the other... and this way I didn't wake up one day to find out they cashed out and went to Vegas with their buddies.... and ended up in a movie "Hangover 3".

Gwen and I will "gift" them up to the max as we see fit... and as they need for babies - house - a busted car etc. But we set ourselves up FIRST so we can now do that and it's no biggie.

I'll "expose" myself a bit more here - just for general educational interest... We are in a position that we are way over the amounts you can put in trusts in the event one of us passes and or both pass etc... so we "can/need" to put assets into trusts and get them out of our estate "IF" we want to escape so large "death taxes".... and we'd discussed putting house down payments or enough to buy a house outright in a trust for each kid. But we don't want "trust fund babies"... and these trusts bring with them extra costs etc and they get complicated if the kids want to sell and move for another job - and the "trust" owns the house and blah blah blah....

I'm all about keeping stuff SIMPLE and so I can understand it. I hate crap with RULES - because over time - the rules change or we violate the rule and get hit with penalties etc. Hate stuff like that!

[GregWeld]

Originally Posted by WSSix

Totally agree and understand Greg. We'll keep it simple here because you're right in that choosing a good stock matters more than doing nothing. The debate over which of the good ones is best can come at another time.

That's what I've been trying to PREACH -- get started -- post it up if you feel like it - let's all discuss it -- rip it apart - or learn from it (MSFT?) etc. but get started is the KEY point.

WITH THAT IN MIND -- I'd love to see "you all" post up some names and the reasons you think they're a good candidate for ownership.... let's get it up to 10 names -- a basic "portfolio" if you will.... and see what that looks like??

Kind of a "on paper" investment club??

[ErikLS2]

It is "best" to gift them assets that have "appreciated".... so --- you bought McDonalds 10 years ago - it's up 300%.... rather than you selling some - and giving the "money" as a gift -- it's best to just transfer "13K" worth of the asset to them. You will not have the long term capital tax (15%) AND the receiver gets what is called the "stepped up cost basis" -- so their "gain" if any is from the date you transferred the asset. So let's say you bought at $100 - it's not worth $300.... the "kid" gets the stock and their "cost" for tax purposes is the $300. They can sell it the next day and have no tax liability... (if it stayed at $300). So you escaped taxes on your gain - and they have no gain so pay no taxes. Sweet!

Greg, it's against my better judgement to counter you on this but without having the time to research it (just on a quick lunch) I believe this only applies if the gifter dies. Otherwise the original cost basis is retained.

Otherwise, 2 people each could buy a stock and then just gift their purchase to the other once it had appreciated and pay no taxes as long as the gift was below the current annual limit. I wish they weren't, but the IRS is smarter than that.

Since you have brought up McDonalds's more than once I think it's interesting to note that they are much more a real estate company than a burger company. They buy prime real estate to put their restaurants on and then lease it back to the franchisee on top of their 8% (I think) franchise fee. How many times have you seen a McD's move a few hundred feet down the road just to be on the corner?

Just wanted to say too Greg what a great thing you are doing sharing all this information with everyone. I looked at the times of some of your posts yesterday and good lord man, did you even take time away for Christmas?

[GregWeld]

I will stand corrected that the RECEIVER uses the cost basis of the GIVER... and not the "stepped up" cost on the date of the transfer. So Erik is absolutely right about that. My mistake.

There are other stepped up cost basis transfers -- and I confused those when posting. We've been in these discussions for weeks now - and there's a lot to take in.

Let's not get off on an estate planning tangent in "investing 102" -- I was just trying to respond to the OP question about how to help your kids out.

Thanks for catching that Erik!!

[GregWeld]

Originally Posted by ErikLS2

Just wanted to say too Greg what a great thing you are doing sharing all this information with everyone. I looked at the times of some of your posts yesterday and good lord man, did you even take time away for Christmas?

We do Xmas on Xmas eve.... Xmas day is for just hanging.... and then I had 12 people (two other families - not related) for dinner (mid afternoon) and then kicked them out by 9! They were hammered enough by then...

Since I don't drink -- I'm an early riser... but do "tire" of the drunks early... At my house - we insist on designated drivers... so usually one of the kids gets stuck driving their parents home. The party started with eggnogs... then I cracked a 3.0L bottle of Stags Leap SLV... then another two bottles of wine! I'm so glad my head wasn't "soggy" when Jawarren showed up to work out this morning!!!

[69x22]

So Greg, all my money is tied up in 401 retirement accounts, but I have after tax money built up as well. My question is if I take some of this after tax money and open a Quiken account how will I know how much taxes I owe each year? Will Quiken send me a form or will I be stuck with figuring it out on my own? I appreciate all of the info.