Investing 102

[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%

[GregWeld]

Here's same chart if you're at the 35% income tax bracket...


TAX-FREE
YIELD TAXABLE-EQUIVALENT YIELD @ 35%
1.00% 1.54%
1.50% 2.31%
2.00% 3.08%
2.50% 3.85%
3.00% 4.62%
3.50% 5.38%
4.00% 6.15%
4.50% 6.92%
5.00% 7.69%
5.50% 8.46%
6.00% 9.23%
6.50% 10.00%
7.00% 10.77%
7.50% 11.54%

[GregWeld]

So if we are to continue this little dialogue....

My MUNI BOND portfolio currently yields just about 4% tax free -- so at 15% dividend tax rate -- I "only" need to yield somewhere around 4.71% in the stock market. Since we need to pay attention to TOTAL RETURN -- that's pretty dang easy or has been easy in an "up market". If a guy can get a 3% dividend and a paltry 2 or 3% growth --- I'm killin' it!

But you have the "535" change that all up.... and watch out below!!

[realcoray]

Originally Posted by hifi875

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.

Apparently some people don't comprehend that it isn't like the government is the only source on job numbers. ADP who is a huge payroll processing company (symbol ADP) reported 170k private sector jobs in January. They did revise their December number down by 10%, to over 290k, but it's not exactly unbelievable that they have a better picture a month after, than a day after.

I think it's quite likely the 15% rate is doomed, but it may not go back to the way it was. I think a lot of people dislike the uncertaintity around it changing almost as much as it changing. If you know it's going to go back to the way it was, you could plan, if you know it was going to jump to 20% you could plan etc.

I would not anticipate interest rates rising until 2014 as that is what the fed has indicated.

[hifi875]

Originally Posted by realcoray

Apparently some people don't comprehend that it isn't like the government is the only source on job numbers. ADP who is a huge payroll processing company (symbol ADP) reported 170k private sector jobs in January. They did revise their December number down by 10%, to over 290k, but it's not exactly unbelievable that they have a better picture a month after, than a day after.

I think it's quite likely the 15% rate is doomed, but it may not go back to the way it was. I think a lot of people dislike the uncertaintity around it changing almost as much as it changing. If you know it's going to go back to the way it was, you could plan, if you know it was going to jump to 20% you could plan etc.

I would not anticipate interest rates rising until 2014 as that is what the fed has indicated.

this is off topic anyway, but its always funny that their revisions are always down not up. they(the government) try to use this information to either prop up their terrible strategies that have not worked or they blame the previous administration.

[GregWeld]

Here's my personal "take" on unemployment....

There's always at least 6% or so that are "terminally" unemployed. If you counted the welfare roles or the folks that never have looked for a job -- or those that have "given up" -- it would be a much higher (%). Frankly -- "they" don't count since they're not "consumers" except for the very basic goods. It's the psychology and fear that affects the 80% that counts... because they're the ones that "pull back" spending... and that's where the damage is done. IF the talking heads said -- hey! Good news! Most everyone that wants a job has one!

What I never understand is the FOCUS on the unemployed. If you had 20% unemployed - what that says to me is that 80% are still working... and being productive. But all anyone (the tv talking heads) can talk about is the unemployed. My wife spent her entire career as a senior HR person... and the only "unemployed" people in her businesses where the bottom of the productive barrel. They might have gotten "laid off" -- but that's just noise for being fired in a mass way. House cleaning.

Ditto the housing crisis... MOST people are paying their mortgage on time -- MOST people are NOT underwater on their houses... sadly those that are have ruined it for the rest of us. This debacle is deeply rooted in GOVERNMENTAL interference in the normal housing market. They ALLOWED and set up the lenders to give away cheap TEMPORARY money... which escalated, artificially the price of houses.

BUT now we're in a political discussion which serves no purpose as I think almost everyone in America understands what happened.

All of my professional life -- only the people with a real down payment - and stellar credit rating got the lowest interest rate. Poor credit -- you paid a risk premium or had to come up with a co-signer - or higher down payment. What the REGULATORS did is to "allow" (by not putting a stop to this practice) the poorest credit rate folks with ZERO down payment get the best interest rate. And we know how that turned out don't we?

[lmnop]

Originally Posted by GregWeld

RAY --- Great question!

Glad you saw the light and figured out the percentage was the important part... Frankly - there are so many figures on a page -- a guy can easily get messed up! That's one of the reasons I say to make a page and write stuff down === then go back and look at them all over again --- double check your "facts" and weed some stuff out -- re-check the charts etc. One time I bought a stock but had entered the wrong trading symbol... and ended up with 10,000 shares of some crap I didn't know anything about! Lucky for me - I was able to sell it within minutes and buy the one I was trying to get.


Now to the question about RISK....

Generally --- and this is really really broad brush "generally" -- RISK carries a higher dividend PERCENTAGE... so if something is paying 10% in a "5% world" -- it would raise the hairs on the back of my neck to start looking at WHY THEY'RE PAYING SO MUCH.... There can be MANY MANY reasons... so you need to look at the competition -- look at the sector they're in -- read as many articles as you can find -- so just google them and see if there's something in there that explains the risks (or not).

Now --- remember that this is a very broad general explanation... There could be a very good reason they pay an above average dividend. Kinder Morgan Partners is set up as a Master Limited Partnership and as such they MUST pass through "X" percentage of their income -- so if they have big income - the dividend will reflect that. This isn't to say they aren't risky -- it's just one reason for one company.

HYG (an ETF) invests in high yield (risky) corporate bonds... so they're trying to strike a balance of risk and yield (same thing we're trying to do = right?) and if they do it right -- you get a nice dividend (actually it's INTEREST so be careful here and understand the difference tax wise!) yield. Your RISK is if interest rates suddenly RISE -- then the face value of the bonds they're trading would FALL... and so would the price per share of this ETF. SO..... here's where you need to be DILIGENT and when you hear/read/discover that something is changing (up or down) you need to understand what that will do to your holdings! You can not be a SLACKER and think you can just go blindly about your life and your money will take care of itself. That's not to say you have to look every 15 seconds (like I do) you need to just keep your brain engaged. MANAGE your money and your risk - that's not TRADING! It's just being diligent.

It's like checking your oil and the air in your tires! You don't just put oil in the car once and forget about it.... and if you have an oil burner (A HIGH RISK POSITION) then guess what -- you need to check it a little more often!

Dude! How simple is that for an analogy??

Generally all the discount brokerages have some kind of assigned "risk" gauge/rating somewhere on the stock page when you're researching. I usually glance at these - check the long term chart -- the dividend - then look at a couple more charts -- then compare them with other known competitors and see if I can get a better chart with near the same dividend etc... Then I scan the news associated with the company to see if there's anything I should pay attention to...

Hey Greg
Thanks again for the great information and also taking the time to write it down. This is exactly what I needed to hear. The more basic information I get the better my research can be. This thread is also opening up conversations for me with my friends about investing and money. Most of them talk about the next big thing to buy. I take all the information with a grain salt write the company down and do my own research now that I have some idea what to look for.

To anyone who is just finding this thread now please go back and read it from the beginning it is worth it if are serious about taking charge of your employees.
Ray

[lmnop]

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.

Hey Woody
Thanks for the information I think different perspectives are important. If you had giving this information 69 pages ago I would have been overwhelmed by it but now with basic understanding that Greg has provided I feel up to the challenge.
Ray

[Bucketlist2012]

Originally Posted by GregWeld

Here's my personal "take" on unemployment....

There's always at least 6% or so that are "terminally" unemployed. If you counted the welfare roles or the folks that never have looked for a job -- or those that have "given up" -- it would be a much higher (%). Frankly -- "they" don't count since they're not "consumers" except for the very basic goods. It's the psychology and fear that affects the 80% that counts... because they're the ones that "pull back" spending... and that's where the damage is done. IF the talking heads said -- hey! Good news! Most everyone that wants a job has one!

What I never understand is the FOCUS on the unemployed. If you had 20% unemployed - what that says to me is that 80% are still working... and being productive. But all anyone (the tv talking heads) can talk about is the unemployed. My wife spent her entire career as a senior HR person... and the only "unemployed" people in her businesses where the bottom of the productive barrel. They might have gotten "laid off" -- but that's just noise for being fired in a mass way. House cleaning.

Ditto the housing crisis... MOST people are paying their mortgage on time -- MOST people are NOT underwater on their houses... sadly those that are have ruined it for the rest of us. This debacle is deeply rooted in GOVERNMENTAL interference in the normal housing market. They ALLOWED and set up the lenders to give away cheap TEMPORARY money... which escalated, artificially the price of houses.

BUT now we're in a political discussion which serves no purpose as I think almost everyone in America understands what happened.

All of my professional life -- only the people with a real down payment - and stellar credit rating got the lowest interest rate. Poor credit -- you paid a risk premium or had to come up with a co-signer - or higher down payment. What the REGULATORS did is to "allow" (by not putting a stop to this practice) the poorest credit rate folks with ZERO down payment get the best interest rate. And we know how that turned out don't we?

I agree completely.. And I will not comment anymore about the obvious that happened.. I was on the winning end of those deals .

Back to this thread of Investing and the here and now..

The nuts and bolts of why we are here... Bubbles come and Go... But the Steady Eddie that manages his workers will win out in the end.

[GregWeld]

Solar -- I was laughing to myself as I posted this.... because in this so called DOWN economy... I've made more money than in the 10 years leading up to it when everyone had rose colored glasses on!

The brand new building (bank owned) my brother in law just bought (I'm the bank) at HALF PRICE -- will be a stellar investment for him 10 years from now! And if he holds it - it will be his retirement fund +

There have been so many opportunities handed to "us" on a silver platter it's just been ridiculous. Some days I have to pinch myself and see if it's all for real. The stock market -- had you bought or added to positions in 08/09 have doubled your money... Those that are buying property NOW will double or triple their money especially if it's income property. The cash flow is just huge and the buy in is half price.

Sorry for the folks that have lost it all -- but someone out there is going to make an absolute killing on their mistakes.

And here's where people get it ALL WRONG.... they lined up to pay over asking price for homes and condos.... and took out artificially low rate loans with short terms... THEY LINED UP TO DO THIS....

WHERE THE HELL ARE THEY NOW?!?!?!?! Right now you can buy the very same property down 30/40+% AND get a 30 year fixed rate loan under 4%!!!

Dude.... nobody wants to buy now.... they lined up to buy high and sell low. Talk about squandered opportunity....