Investing 102

[GregWeld]

Originally Posted by XLexusTech

Forgetting the political.. the pending legislation/climate (next 4 years) will it effect those who make 199K and less from a PURE tax impact?

What I have read thus far is the people who are effected are those who benefit from handouts and those who make over 200K... is that wrong?

Those that are lower earners - are probably not big investors... their incomes may be dependent on OTHERS making investments and building stuff etc. So rightly or wrongly - they're affected by what others are going to do.

If you're a real estate sales person - you depend on TRANSACTIONS for your income... no transactions - no income. Ditto the home inspector - the loan officer... None of whom probably make $250K per year. This is just ONE example but you can multiply this for almost every industry where the "average guy" works. If we don't build buildings - we don't need workers/welders/steel/glass/excavators/ and on and on.

Let's go back to when they put a 10% LUXORY tax on Boats over a certain $$ value... and Furs... and Cars over a certain $$ value. What happened? 60,000 (actual fact - look it up) people BUILDING boats lost their jobs because the rich guys buying those boats just didn't buy them... and high end car sales plummeted. They changed that tax but by then it was too late for all the "little people" that lost their job.

People have CHOICES.... the more income and more wealth someone has - the more choices they have. They choose where and how to invest and when you think about it - in reality - if ONE rich guy buys a 100' yacht - there were maybe 100 people working to build it.... so when that guy decides to NOT buy that... then you have fall out.

Obama doesn't understand ANY of that - because he's never had a real job or run a business...

[Bucketlist2012]

Well, it is what it is. I am not posting politics, but my financial opinion.

I am not a really wealthy guy, so this is going to be an interesting time for me.

I think the election is part of the "punish the wealthy " tour..But strangely , those that voted for Obama end up shooting themselves in the head and not the foot. Many are young and see this as a "victory"..I think long term it won't be a victory for them at all..

If we were sidelining money due to unceratinty, what do they think we will do now...Debt,Taxes, Obamacare, ect...will only have brutal consequences on where we put our money..So if we don't invest, then Jobs are not created or kept..

I only see the middle getting crushed in the near future...The poor will stay as they are, and the really wealthy will weather the storm..The middle will suffer. Just my opinion, but sadly i think I am right..

[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
:-)

[96z28ss]

oh man I was doing pretty good on my IRA but its a blood bath today.
It may go into negative territory.

[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...

[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....

[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.