Investing 102

[GregWeld]

The calculation you left out of this is TAX RATE Differential.... Corporate Bonds are ordinary income tax rate.... Dividends are max tax (right now) at 15%

Makes a HUGE difference in the yield.

[Bucketlist2012]

Originally Posted by GregWeld

The calculation you left out of this is TAX RATE Differential.... Corporate Bonds are ordinary income tax rate.... Dividends are max tax (right now) at 15%

Makes a HUGE difference in the yield.

BIG difference..What like 30% plus vs. 15% ?

Taxes are HUGE in money management. Things I am still learning, but I know play a large role in the strategies used.

Again, thanks for the tip..

I just try to give the troops smaller numbers to think about, so that it all seems possible with research, action, and time..

[bdahlg68]

Maybe this goes beyond 102, but one thing which might be a good topic to discuss is INFLATION! Just read this article and thought it might be a good discussion point for this forum and how to consider this in diversifying your portfolio, or where "parking" you money may change over time.

http://moneymorning.com/2012/02/16/i...-on-inflation/

[BC69]

The calculation you left out of this is TAX RATE Differential.... Corporate Bonds are ordinary income tax rate.... Dividends are max tax (right now) at 15%

Makes a HUGE difference in the yield.

Ah, good point. Still in the 4% vs. 7%. $1000 Investment. $40 for dividends ($34 after tax). Or $70 ($47 after 32% rate). I can see the shorter maturity bond being negated by the taxes, but still have security factor.

But totally right, if this is an investment account and you take that out to use yearly, taxes impact. If its a long term account, ROTH 401k or IRA, taxes will be a mute point.

What made me think of this was that my old boss, his father in law lived off of dividends from his old company (a large cap industrial mature business), and in 2009 they cut the dividend to conserve capital. Had a huge impact on guys like that, massive! Bond holders kept their income.

Also, another lesson in diversification right.

[GregWeld]

Originally Posted by BC69

Ah, good point. Still in the 4% vs. 7%. $1000 Investment. $40 for dividends ($34 after tax). Or $70 ($47 after 32% rate). I can see the shorter maturity bond being negated by the taxes, but still have security factor.

But totally right, if this is an investment account and you take that out to use yearly, taxes impact. If its a long term account, ROTH 401k or IRA, taxes will be a mute point.

What made me think of this was that my old boss, his father in law lived off of dividends from his old company (a large cap industrial mature business), and in 2009 they cut the dividend to conserve capital. Had a huge impact on guys like that, massive! Bond holders kept their income.

Also, another lesson in diversification right.

Good post! And yes -- EVERYONE reading this stuff needs to remember what type of accounts they're "investing in"....

I personally have a large Muni bond laddered portfolio - which yields just over 4%) for the income stream and safety (I'm 58 - retired and have been for 20+ years)... so a safety net and the tax free munis "fit" for me... countered by growth and income in securities (stocks)...

Personally I have corporates in both accounts... and some of them are real good interest rates - like 7 and 8%! But of course in my case that's a taxable interest so I invest in these and look for the higher rates.

Back a few pages = I posted the taxable vs tax free "tables" showing equivalent yields needed depending on the tax rate.

It's VERY IMPORTANT for the "newbs" of Investing 102 not to get confused in these discussions.... you've got to think about what account you're taking action in and it's affects.

[GregWeld]

Originally Posted by bdahlg68

Maybe this goes beyond 102, but one thing which might be a good topic to discuss is INFLATION! Just read this article and thought it might be a good discussion point for this forum and how to consider this in diversifying your portfolio, or where "parking" you money may change over time.

http://moneymorning.com/2012/02/16/i...-on-inflation/

Brian ---

GREAT POINT!

This is where a guy could launch into a discussion about bonds vs securities (stocks) and GROWTH vs Income stream.

I just mentioned in the above post that I have a Muni bond portfolio (about 30% of my investable assets).... So here's a good point to discuss. This account -- should interest rates remain "stable" will spin off income (4% ish) but will basically have zero growth in CAPITAL. The bonds will mature at their maturity dates and I'll just get my money back....

BUT... that is ASSuming that I "hold" the bonds to maturity. Which I plan to do. I'm only laddered out 5 years - as of last year - so to 2018. Each year beginning this year (2012) I will have one 5th of that account "mature" - we will then use that cash to buy bonds that that mature in 2019 and so on.

Here's the problem with that.... you have no growth in capital - and if I can "only" make 4% interest (tax free) and inflation is running at 3%.... I'm really falling behind.

What I've done personally is to keep a larger majority of my investable assets in securities which - if I do it right - will keep me even or better than the inflation rate. That's the "TOTAL RETURN" that I keep banging on. If you don't have that -- you're going to be falling behind more and more every year. That the BALANCE we've discussed.

My balance is - some safety (at my age) - in return for a tax free dividend/interest income stream... while taking more "risk" in the stock market... and attempting to get a higher TAXABLE dividend stream from those investments.

If you're in a ROTH / 401K etc... this is kind of a mute point - because you won't have the tax issues ("yet" -- remember the 401 is only "deferred") and you won't have any taxable event with the ROTH.

If you're reinvesting the dividends from your stocks... and you have growth in the capital (total return) you should be "okay"

[GregWeld]

I got a good laugh today when Schwab sent me an email that my 2011 1099 tax form was ready... okay I thought - I'll just print it off... HA! It's 58 pages!

I'll let 'em mail it.

[GregWeld]

What the heck guys -- I go off to Run to the Alamo -- and you all quit talking/posting... what's with that!

Come on now - let's get some new energy going!

Ya wanna go racing with me - that costs money - so ya gotta make some!!!

[hifi875]

been pondering my next move. got my statement on one of my investments the other day and wow it made me 10% in one month. i was like, this is awesome, then i remembered it lost about 5% the previous month. oh well. glad i don't need it now. want to buy some more stock, just trying to figure out what.

[Bucketlist2012]

Well I was reading about the MLP's and their advantages in seeking alpha today.

Things I already own, but good to get more info on the advantages ..

Wife and I were talking balance today... How much to spend vs. Save..

I have set the numbers way out on our portfolio, and we are looking to make sure to not leave too much on the table..

I would love to just blow some more cash, but not yet..

Investing for the future, and enjoying today... We crunch the numbers every January, and then a major review every 5 years..

But Time has compounded things quite well. People think they may have missed opportunities already...

Not so, Time and the income stream is on your side..

Money made while you work, sleep, or race Greg...