Investing 102

[chichirone]

Doing more research on dividend types and tax implications, here is an article I found which was helpful:

http://www.dividend.com/dividend-edu...ied-dividends/

[68Cuda]

Originally Posted by GregWeld

Todd --- Found this by accident and thought it worthy of a post in response in a round about way to your question.

I can't live with a 3% return - with no capital growth - in an inflationary world.



(Reuters) - Bond investors need to revise their expectations of the returns they can make in the years ahead, said Scott Mather, one of three Pimco managers who run the firm's Total Return Fund following the shock exit of co-founder Bill Gross last month.

In an interview with Germany's Boersen-Zeitung newspaper, Mather, Chief Investment Officer for U.S. core strategies at Pimco, said: "Even if interest rates gradually increase, with a global portfolio of bonds with the best creditworthiness you can maybe expect a return of about 3 percent in the coming years."

Why in the world would I accept a 3% return on something I am locked in on when an investment as brute simple as PG pays 3%? T and VZ are both paying more than 4.5% right now. MO is at 4.4%, may have to get me some more of that!

[68Cuda]

Originally Posted by chichirone

Doing more research on dividend types and tax implications, here is an article I found which was helpful:

http://www.dividend.com/dividend-edu...ied-dividends/

For most stocks... If you hold your stocks for years, this is a minor issue. If you jump in just before the ex-dividend date, then sell afterward to try to make a quick buck, then this is a bigger issue.

[Vegas69]

Originally Posted by GregWeld

Todd --- Found this by accident and thought it worthy of a post in response in a round about way to your question.

I can't live with a 3% return - with no capital growth - in an inflationary world.



(Reuters) - Bond investors need to revise their expectations of the returns they can make in the years ahead, said Scott Mather, one of three Pimco managers who run the firm's Total Return Fund following the shock exit of co-founder Bill Gross last month.

In an interview with Germany's Boersen-Zeitung newspaper, Mather, Chief Investment Officer for U.S. core strategies at Pimco, said: "Even if interest rates gradually increase, with a global portfolio of bonds with the best creditworthiness you can maybe expect a return of about 3 percent in the coming years."

Yep, no thanks. I'm changing all of our existing IRA's to 100% equities. I'll worry about fixed income in 30 years.

[GregWeld]

Originally Posted by chichirone

Talking to my financial advisor yesterday, he mentioned tax considerations when investing in dividends. Warned us we would pay regular income tax rates versus the 15-20% I read on this site and elsewhere. Also, he mentioned qualified and unqualified dividends. I tried to research and on www.dividends.com the 2012 fiscal cliff legislation that went into effect kept capital gains and dividend taxes at 15%, unless adjusted gross income is over $400kind/$450kcouple, raising it to 20%. However, there is a statement that unqualified dividends would be taxed at the regular income tax schedule up 39.6%.

So what constitutes qualified versus unqualified? And if I check the box to reinvest dividends, I'm guessing they go down as income but are they taxed at 15-20% or at my personal income tax rate based upon total earnings? I've got an email out to my accountant as well. I'm not trying to play a tax scheme here, just trying to understand the differences between the two types of dividends.

On a better note, my advisor did say we have learned something that takes many 20+ years to figure out. Dividend stocks that combine growth and a healthy dividend return are better during downturns and also allow you to buy shares at a lower average cost if reinvested during growth years, prior to the need to take the cash payout. He said, keep it up and my goal should be to put him out of a job! Thanks to all that contribute to this thread. It has really opened up our eyes to different avenues to grow our wealth and invest to have our "employees" work harder for us.

I would FIRE your "financial advisor" instantly and never give him another chance. He doesn't know what he's talking about and obviously missed the most basic education. He either doesn't understand -- or doesn't know how to explain your situation or worse.

He's doing the "typical" advice -- trying to make investing scary and difficult - so that you need him/her.


CAVEAT ---- EVERYONE SHOULD DISCUSS THEIR SITUATION WITH THEIR TAX ACCOUNTANT....

Capital gains --- there are TWO TYPES --- "Long Term" which means ONE YEAR AND ONE DAY.... of holding the investment -- if you sell for a gain - it would be LONG TERM CAPITAL GAINS.

Short term capital gains is any other type of gain - where you did not hold the investment the ONE YEAR AND ONE DAY requirement to make it a Long Term Capital Gain. SHORT TERM CAPITAL GAINS are taxed at ordinary income rates.


COPIED FROM THE IRS WEBSITE:


The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2014, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.

If you're married and filing jointly and your adjusted gross income is over $457,600 your tax rate will be 20%

I certainly hope you're in that bracket!



DIVIDENDS --- (of which you would need to really try hard to buy something that was "unqualified") are taxed at the Dividend rate which is the same at Long Term Capital Gains:



Long-term capital gains and qualified dividends
A top rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year (28% for collectibles and 25% for depreciation recapture) for single filers with taxable income up to $406,750 ($457,600 for married filing jointly). Long-term capital gains or qualified dividend income over that threshold are now taxed at a rate of 20%.



MORE INFO HERE:



http://www.schwab.com/public/schwab/...axes-Whats-New




I will tell you from my own personal situation -- and I have a quite complicated tax filing. 2013's income tax form was 154 pages.... and our income was just under one million dollars this year.... and my tax rate was 20%. I DO NOT have a lot of deductions - but I have ZERO EARNED INCOME... so all our taxes are dividends - interest - long or short term capital gains.

[Vegas69]

Beautiful So you are using dividend income on stocks held over one year? Is that correct?

[dylanCamaro582]

So, i have been following the thread for a while. Investing 102 seems to be for the guy who have some money in the market.

I have one bigger question: what should the beginner investor(like one or two deposits in to their 401K) do?

I currently have a small amount(less $100 in to my 401k),but i put 10% of my pretax income in 401K and my company matches up to 6% in to my 401K. I estimate that in will need at least $1 million at today's current money valve to retire and live comfortably. I currenty have my small amount in to Fidelity's LifePath® Index 2055 Fund Q.

So my secondary question is: How long do I wait and change my investment?

[GregWeld]

Originally Posted by Vegas69

Beautiful So you are using dividend income on stocks held over one year? Is that correct?

Sorry Todd -- I'm not sure who or what you're asking...

If you're asking me about my income? All of my income is derived from Dividends - Interest (received) - Long or Short Term Capital Gains - and income from limited partnerships (apartment complexes), which have offsetting depreciation.

I rarely do short term capital gains -- and since I have no earned income -- I'm not sure what the tax rate is on them but my guess is they'd just be at the tax rate of whatever that "income" is, dollar wise, would be. Probably total STCG last year might have been 100K or less... so no big tax hit there.

Having said that -- my personal tax situation is unique - probably - to the group here since there is zero earned income to deal with. My situation is where a guy wants to be when they're retired -- which is partly why I posted what I did. In retirement you want to have very low income taxes - zero or little debt - and no earned income (which affects EVERYTHING).

This is another reason TAX FREE BONDS are such a stupid investment idea as people reach retirement age. The tax rate is so low at that point - what's the point in taking a poor rate of return when you're not really in a taxable situation to begin with?!?!?! WTF!?!?! Stupid. When Gwen was working - and she had a very high income level (mid six figures) - then part of our portfolio was invested in TFMunis because the top tax rate of almost 40% plus the AMT rate - a tax free income of 3 and 4% on the bonds made sense. It doesn't anymore since she retired in 2010 and now we have "no income" (I love that statement).

BY THE WAY -- to those that wonder why I post such personal info. It's ONLY TO HELP OTHERS. I don't really give a sh!t about such things. Gwen or my entire working careers where as officers of public companies - and as such, all of our incomes where public information. All a person had to do was to Google it and it and all the "compensation" was there to see. I got over being offended by it long ago. And if I can help one person gain some financial footing. Then fantastic. Back when I was a VP we didn't have the internet -- so it made it far harder for people to find out such things... you had to get a "prospectus" or read thru the filings to get this info - but if you wanted to know - it was right there in print. Now it's all on the web. Ours isn't any longer since we're no longer officers of any publicly traded corporations.

[GregWeld]

Originally Posted by dylanCamaro582

So, i have been following the thread for a while. Investing 102 seems to be for the guy who have some money in the market.

I have one bigger question: what should the beginner investor(like one or two deposits in to their 401K) do?

I currently have a small amount(less $100 in to my 401k),but i put 10% of my pretax income in 401K and my company matches up to 6% in to my 401K. I estimate that in will need at least $1 million at today's current money valve to retire and live comfortably. I currenty have my small amount in to Fidelity's LifePath® Index 2055 Fund Q.

So my secondary question is: How long do I wait and change my investment?

First -- I'm going to ASSume your name is Dylan.... So welcome Dylan!


Let me address one thing first -- this thread is not really so much about guys with any money - some have some - some have a lot - some have very little... and it's not so much about the stock market as it is about saving and INVESTING for retirement. The "stock market" has historically had the highest return - compounded - over time. But that's not all we talk about here. There are rental houses - apartments - commercial buildings - Master limited partnerships etc. BUT --- always the big butt in the room -- for most people INVESTING in the stock market is the easiest way and can use the smallest initial capital and can be added to as money is accumulated. In other words - a guy with a $1000 can buy some stocks and as he gets another $500 saved up - he can buy some more and so on. Other types of investments take larger up front capital. Since this is a thread for BEGINNER investors... we've all tried to stay focused on that aspect. BASIC INFO and ways to look and research and what is and isn't important etc.

Okay -- next up for you -- is your 401K. Good for you for starting early. I'm again going to assume you're young, and perhaps just beginning your career???? The reason I'm assuming that is because your investment in Lifepath 2055. That date has meaning. That date is for people that should be retiring about that year. Correct me if I'm wrong about you being younger.

Fidelity is the investment company your company uses to manage/direct/handle your companies retirement plan. They then give you choices within that plan to invest your contributions in. Some plans have lots of options - some keep it very simple and short. Your actual investment is in BLACKROCK LIFEPATH 2055..... and Blackrock is a very good company which runs about a half a zillion different "funds". I couldn't even find yours specifically in order to look at it. It was the "Q" that threw me off.

What I need from you is the actual TRADING SYMBOL -- such as "LIVIX" or similar.

So -- forgetting all the confusing detail above. You're in the right place as far as contributing to your company plan. Stay with that for now. The matching percentage is a good one... and as soon as you're able - I'd increase your percentage to 15% ASAP. If you read this thread from the beginning - you'll find a recurring theme, i.e., START EARLY in order to reap the benefit of COMPOUNDING over time. The more you save early - the more you'll have at retirement by a LONG SHOT and I mean HUGE.

Just quickly ----- a guy that invests $2000 a year from age 21 until he's 31 and after 31 he never adds another nickel to his pile - will retire with a million bucks at normal rates of return - compounded. If the same guy starts saving the $2000 at 31 and puts that away every year until he/she retires - will have about half that. Which guy would you rather be?? Don't answer that - it's a rhetorical question. LOL


OKAY THEN ---- keep pounding away - and increasing your contribution until you have at least $2500. At that point you're going to need to choose another fund in your plan -- and start putting the new money into that choice until you reach $2500 and so on. When you get $10,000 in your plan total... then you will need to start to look at alternatives if any. BUT -- the NUMBER ONE thing I'd do if I was you --- OPEN A ROTH IRA and start funding it with as much as you can. You're company plan is "PRE TAX" - which is great - but you'll pay taxes on it when you retire and start to withdraw. A ROTH IRA is "after tax" money that you put in on your own - and since you've already paid the taxes on it - it comes out totally tax free when you withdraw. That includes all the gains and income/dividends etc that it earned for all the years. TAX FREE. PERIOD. It's the greatest gift the tax man ever gave the good citizens of the United States. USE IT.

Any discount brokerage will help you understand it - and open the account. Just make a call to the one you choose and set up an appointment to discuss your personal situation. They'll be happy to help you. I'm talking Schwab - Fidelity - etc. Find an office that is convenient to your home or office. You can always move the account later. The key is to get started EARLY and save/invest as much as you can.... 65 years old comes up far faster than you can even imagine! Ask me how I know?!?!?! LOL

[GregWeld]

SO -- Since I'm on a roll this fine Sunday morning... I found a terrific chart to show why I use LIMIT ORDERS to buy or to sell!!!!!!

Not important when buying 25 o5 50 shares... then I'd just do a market order most likely - but it doesn't hurt you to put in a limit order as long as you're going to stay on top of what you're doing!

Here's a ONE DAY chart of a company where the "range" was over $2 a share! On a $16 dollar stock... that's a HUGE percentage. On top of that - it would make you FEEL GOOD if you bought more near the bottom than the top. AND if you sold (using a limit order) nearer the top than the bottom! Just by setting the price you want to buy at or sell at rather than just paying/selling at "market" using a market order.


Check out this chart. You could buy at Market and pay $16 or you could have stuck in a LIMIT ORDER and put the price at $15 or any other number you chose and you'd have gotten a fill. The one day RANGE on this stock was over $2.00 !!! It traded as low as $14.30 and as high as $16.36.... where would you have rather bought the shares? LOL


THIS IS A WILD EXAMPLE.... normally I'm trying to bid a .50 cent or 1.00 range.... but if you're willing to stay on top of your trades and manage them - you can play the game and win.


https://www.google.com/finance?q=arp...BsGZqAHtoYHIBw