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Subject: persfin-digest V4 #16
Date: Wed, 2 Apr 1997 20:45:17 -0500 (EST)
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persfin-digest Wednesday, April 2 1997 Volume 04 : Number 016
IN THIS ISSUE:
ADVERTISEMENT: LAN ACCESS TO MCI MAIL [Oppenheimer Software <Connect-Sal]
Re: Five Reaons To Sell A Stock - Not Too Crazy About #4 or #5 [Greg Pana]
Is the Amazon.com IPO A Good Investment? [The Editor <ikrakow@shore.net>]
Other Factors That Affect the US Divorce Rate [Srinivasan Varadarajan <sr]
Managing Credit Card Debt while in Business School ["Mark W. McInnes" <mc]
Re: Marginal Tax Rate vs. Average Tax Rate [Rich Carreiro <rlcarr@animato]
Divorce Rate and Birth Rate [feren@ctron.com (Andrew C. Feren)]
Non-dividend Reinvestment Plans As An Alternative to DRIPs ["Barry H. Rod]
Re: Late Estimated Taxes ["Barry H. Rodin" <brodin@pica.army.mil>]
Tax Brackets - When Do They Get Taxed at Different Rates? ["Robert Loeser]
Re: Single stock buying [Kalpesh Sheth <ksheth@BayNetworks.COM>]
I'm More Interested In Probability Of Divorce [Boris Varshavsky <borisv@c]
US Divorce Statistic Is Confusing [Ian Haggard <ian@shellus.com>]
Re: Buying a Stock Before Or After A Split? [Francesca Pardo <fp10@cornel]
Re: Avoiding Withholding Tax Penalties [David Martin <dmartin@seabreeze.]
MMFs And Emergency Fund [David Martin <dmartin@seabreeze.hc.ti.com>]
Consequences of Waiting for the IRS To Send Bill For Late Taxes [FW & SC ]
Quicken vs. QuickBooks ["rip west" <rip@montrose.net>]
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Date: Wed, 2 Apr 1997 20:08:38 -0500 (EST)
From: Oppenheimer Software <Connect-Sales@mcimail.com>
Subject: ADVERTISEMENT: LAN ACCESS TO MCI MAIL
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------------------------------
Date: Wed, 2 Apr 1997 20:09:45 -0500 (EST)
From: Greg Panayoti <greg_panayoti@il.us.swissbank.com>
Subject: Re: Five Reaons To Sell A Stock - Not Too Crazy About #4 or #5
>From: "Peter Diamond" <diamond@vsi.net>
>
>There are many reasons to sell a stock:
>1) You need the money.
>2) There are "better" investment opportunities elsewhere.
>3) Your lifestyle/economic situation has changed.
>4) The stock has risen and provided the return you wanted.
>5) The stock has fallen more than you can afford to lose.
I'm not too crazy about your reason #4.
Following this method over the past 20 years would have ensured that you
missed some of the biggest booms in individual stock price Wall Street
ever saw (Pep Boys for one). There would be no way you could see that
these companies would continue to grow and you would have sold them for
a small percentage of what they actually came to be worth. In effect,
you would lose money. How can you possibly set a limit on what return
you want? If a company is appreciating for good solid reasons ... why
on earth would you sell it?
I definately do not agree with number 5.
Yes, if you re-evaluate one of your purchases and the company now seems
to be headed in the wrong direction then selling it would be an option.
But selling a stock *strictly* on the fact that it's price fell is not
the way to make money in the market. Technically if you couldn't afford
to lose the money, you shouldn't have invested in stocks in the first
place.
If you purchase a good sound stock and nothing has fundamentally changed
with respect to that company (except that the price just fell because of
some Wall St whim) then selling is the *surest* way to lose money. Not
only do you lose on the down side, you will lose the appreciation when
it rises back up (it always will - in time - if it's a good value).
My 2 cents
GP
("these are just my opinions ... I could be wrong").
------------------------------
Date: Wed, 2 Apr 1997 20:11:50 -0500 (EST)
From: The Editor <ikrakow@shore.net>
Subject: Is the Amazon.com IPO A Good Investment?
I read today that amazon.com is going the IPO route. I was wondering
whether anyone thinks it's a good idea to participate. Usually, we don't
talk about individual stocks, but the last time somebody raised the IPO
question was right before Netscape went public.
So...Is Amazon the next Netscape?
Ira
------------------------------
Date: Wed, 2 Apr 1997 20:13:52 -0500 (EST)
From: Srinivasan Varadarajan <srin@consilium.com>
Subject: Other Factors That Affect the US Divorce Rate
>>
>> The U.S. has one of the highest divorce rates in the world --
>>approximately 50% of marriages end in divorce. There are many lawyers
>
>This is an often quoted figure, with no basis in fact. The actual divorce
>rate is probably much closer to 10% than it is to 50%. The 50% figure is
>determined by taking the number of divorces in a year, and dividing by the
>number of marriages _created_ in a year. The proper divisor should be the
>number of marriages that existed. Unless a couple was both married and
>divorced in the same year, there is a problem here.
>
> Terry
The number of existing marriages can include second , third , fourth
etc. marriages...
i.e. marriages AFTER a divorce. Therefore, in calculations of this sort
the following
method is used:
0. At any time of the year:
1. Find the number of married couples in which neither partner has been
married before.
2. Find the total number of married people.
3. Now, find the ratio (2-1):2 . This is the fraction of divorced
couples in the married pool.
I believe that it is this ratio which is around 0.47
I would think that measuring the divorce rate can get quite messy. Do
you measure this based on whether a marriage ended a year after the
wedding? or 2 years? or 5? or 25?
Regards
Srinivasan Varadarajan
(Editor's Question - How about people who divorce and then remarry each
other? -IK)
------------------------------
Date: Wed, 2 Apr 1997 20:16:16 -0500 (EST)
From: "Mark W. McInnes" <mcinnes@qis.net>
Subject: Managing Credit Card Debt while in Business School
This Fall, I will be entering the full-time MBA program at the
University of Maryland. I will be using a Stafford loan to pay for
tuition and living expenses.
Unfortunately, I have a fair amount of credit card debt. Does anyone
know of any type of loan, in addition to the Stafford, which would help
me make the payments on my credit cards while in school?
Mark McInnes
mcinnes@qis.net
(Editor's Comment - You must have a mountain of debt if you need to take
out a Stafford loan just to make the payments. How are you managing
tuition and living expenses? -IK)
------------------------------
Date: Wed, 2 Apr 1997 20:18:43 -0500 (EST)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Marginal Tax Rate vs. Average Tax Rate
>I have been working on my taxes and noticed Ira's comment about "marginal
>tax rate". I am a bit confused about what this phrase means. I thought
>it meant the taxes you actually pay as a percentage of your total income.
>
>total $ in taxes paid / total income $ = marginal tax rate %
What you are describing is "average tax rate." The marginal tax rate
is the tax you would pay if you earned $1 more. So if T(I) is your
current total tax and T(I+1) would be the total tax you'd have if you
had $1 of income, then the marginal rate is:
T(I+1) - T(I)
-------------
1
[basically it's the derivative of the tax vs. income curve].
>Why are all the tax references in investing made at your highest rate
Because each additional dollar is taxed at the marginal rate, not the
average rate. You'd have a totally wrong analysis if you used the
average rate. For example, let's say you are comparing a tax-exempt
investment returning 7.5% vs. a taxable investment returning 10%. You
are going to invest $1000. You are in the 28% bracket. The taxable
investment will generate $100 in income, which will increase your
taxes by 28% (since you are in the 28% bracket), leaving $72 for an
effective return of 7.2%. The tax-exempt investment will generate
$75, but won't change taxable income. So all other things being
equal, you'd pick the tax-exempt investment. But if you mistakenly
used the average rate, you'd make the mistake of thinking that the
$100 income would only incur $17 in taxes, leaving $83 after-tax, and
you'd end up making the wrong investment.
I simplified a bit, actually. Your marginal rate can be higher than
your bracket rate. This occurs when you are in the middle of a
deduction and/or exemption phase-out. It also occurs when you have
deductions subject to the 7.5% or 2% floors. In this case, $1
additional income increases your taxable income by more than $1
(because of the reduced deductions/exemptions). So your tax on that
$1 of income is actually more than the bracket rate.
If you ever did any EE work, remember how you'd analyze a transistor
circuit and establish the DC operating points? You'd then linearize
around the operating point to get the gain, etc., etc. -- this is the
same thing. Your income brings you to your operating point and then
you linearize around that to see what incremental changes to income do
to your taxes.
Hope this helps some!
Rich Carreiro
rlcarr@animato.pn.com
(Editor's Comment - I read somewhere that there were over 10 Federal tax
brackets, because of these phaseouts. There are even situations where
earning $1 more costs you more than $1 in taxes (because of the
phaseouts). How many brackets are there? -IK)
------------------------------
Date: Wed, 2 Apr 1997 20:19:55 -0500 (EST)
From: feren@ctron.com (Andrew C. Feren)
Subject: Divorce Rate and Birth Rate
> number of marriages _created_ in a year. The proper divisor should be the
> number of marriages that existed. Unless a couple was both married and
> divorced in the same year, there is a problem here.
I was going to post this explanation as well, but hadn't
gotten around to it yet. Figuring the divorce rate in this
fashion is similar to saying that 1/2 of all births end in
death because 50 deaths and 100 births in a given year.
I can't remember where I first heard of the inaccuracy of this
statistic.
- --
- -Andrew Feren (feren@ctron.com)
Cabletron Systems Inc.
Durham, NH
------------------------------
Date: Wed, 2 Apr 1997 20:24:19 -0500 (EST)
From: "Barry H. Rodin" <brodin@pica.army.mil>
Subject: Non-dividend Reinvestment Plans As An Alternative to DRIPs
Since Microsoft has never paid any dividends, they do not have a DRIP
in the usual sense. However, the have an "N-DRIP" (i.e., a non-dividend
reinvestment plan). That is, they automatically reinvest the money that
they would have paid out in dividends back into the company.
There are many advantages to the N-DRIP including:
- --No paperwork needed to sign up
- --No dividend checks to get lost in the mail
- --No need to keep track of Forms 1099 and pay taxes on the dividends
- --No need to keep track of the increase in "basis" when the dividends
are reinvested so as to be able to report the correct amount
when the shares are finally sold
- --Tax deferral, in that no taxes are due every year, but are deferred
until the stock is finally sold or passed on to your heirs.
Thus, I prefer to invest in growth stocks where I can automatically
participate in their N-DRIPs.
Barry
(Editor's Comment - All this is true, provided that the growth is not
factored into the price already. If a stock has a P/E of 100, there's a
hefty assumed earnings stream already in the price, so any disappointments
will cause the stock price to fall sharply.
Better - a stock with a P/E of 10 which is growing at greater than 10% a
year. The market hasn't factored the future earnings into the price yet.
- -IK)
------------------------------
Date: Wed, 2 Apr 1997 20:25:33 -0500 (EST)
From: "Barry H. Rodin" <brodin@pica.army.mil>
Subject: Re: Late Estimated Taxes
>From: "Peter Staecker" <staeckep@macom.com>
>
> Last month I found that we did not send in our second payment of
> estimated tax to IRS - so we sent it in - over 6 months late. How do
> we report this blunder to figure the additional interest/penalty
> involved?
>
> Peter
Peter --
Easy. Use Form 2210. Titled "Underpayment of Estimated Taxes." Follow
directions carefully. If you use the "annualized income" method of figuring
taxes due, in typical government logic, the form takes you from page 1 to
page 3 and back to page 2. Read the form "line-by-line". Enter your
estimated tax payments when you actually made them. On page two, you figure
the penalty for each quarter of underpayment and add up all the quarterly
underpayments top get to the total. If you have a tax filing program, such
a Personal Tax Edge or Turbo-Tax or Simply Tax, it will walk you through
the calculations.
Frank
(Volunteer Tax-Aide for the Elderly, AARP/IRS, not a paid preparer.)
- ----- End of forwarded messages
Since Form 2210 is rather complicated, why not just wait until the
IRS sends you a bill?
Barry
------------------------------
Date: Wed, 2 Apr 1997 20:26:18 -0500 (EST)
From: "Robert Loeser" <Robert_Loeser@Medec.com>
Subject: Tax Brackets - When Do They Get Taxed at Different Rates?
At what dollar figure do salaries get taxed at different rates? For
example, salaries that range from $a to $b are taxed at c% and
salaries that range from $d to $e are taxed at f%, etc. I'm just
trying to find out what bracket I'm in and how close I am to the next
bracket.
------------------------------
Date: Wed, 2 Apr 1997 20:27:44 -0500 (EST)
From: Kalpesh Sheth <ksheth@BayNetworks.COM>
Subject: Re: Single stock buying
Hi Kristina,
It might be advisable to goto broker as buying from a person involves
lot of headache. Also, Pepsico (PEP) has minimum of 5 shares to open
DRIP. AT&T has min 10 shares to open DRIP.
I bought my first shares for many of these companies from Dean Witter
and they have special promotion for small people like us. They will
sell you 1 share for the (cost of share + 10% of stock value + $2.35)
So, for a stock of $40 you will end up paying $46.35 ( $40 + $4 + $2.35)
The person I interfaced with was Tim Emerson and phone# 1-800-733-6113
ext 743. When you buy a stock, tell him that you are buying this for
DRIP so he will do the paperwork to deliver you stock certificates.
Good luck..
- -Kalpesh Sheth
------------------------------
Date: Wed, 2 Apr 1997 20:31:44 -0500 (EST)
From: Boris Varshavsky <borisv@ctron.com>
Subject: I'm More Interested In Probability Of Divorce
>The actual divorce rate is probably much closer to 10% than it is to
>50%. The 50% figure is determined by taking the number of divorces in
>a year, and dividing by the number of marriages _created_ in a
>year. The proper divisor should be the number of marriages that existed.
The number *I* would be interested in is the *probability* of divorce
for an average couple during an average lifespan.
- -Boris
Dover,NH
(Editor's Comment - How about borrowing a metaphor from particle physics -
what's the "divorce half life"? In other words, if we start with a group
of people married at the same time, at what point are half of the couples
divorced? Also, can we correlate for age? If the group are all teenagers
is the experience different than if the group are in their 40s? -IK)
------------------------------
Date: Wed, 2 Apr 1997 20:33:47 -0500 (EST)
From: Ian Haggard <ian@shellus.com>
Subject: US Divorce Statistic Is Confusing
Be careful here, statistics can get very confusing -- after all, why
else would politicans love them so much? You have to be very careful
that what you say you want to measure is really what you want to
measure.
The really correct way to measure the divorce rate would be to go 100
years into the future, count the number of marriages that existed this
year, count the number those marriages that ended in divorce, and then
divide the latter number by the former number. Barring time travel,
however, this is not possible. So the 50% figure is a pretty good
approximation of the real figure, assuming both the marriage rate and
the divorce rate are more or less constant across years.
The 50% figure is somewhat confusing, though. Say that you want to know
how many people get divorced at least once versus how many people get
married at least once. That is not the same as the percentage of
marriages that end in divorce. In other words, if you surveyed one
person who got divorced 4 times, and four people who married and never
got divorced, then your answer would be 50% using one method and 20%
using the other. And to make things even more confusing, let me use an
example from my own life. My parents got divorced and then remarried
each other. So you could say that my parents had a 50% divorce rate.
But I wouldn't say that. I would say that their marriage was
interrupted by divorce, but not ended. But how would you measure this
statistically?
> The proper divisor should be the number of marriages that existed.
Not quite. If you surveyed 10 married couples and one of them got
divorced this year, then your answer would be 10% using this method.
But what if some of the 9 remaining couples got divorced later on? Your
method doesn't account for this.
Sorry for the long post, but I have a hard time standing by when I see
statistics incorrectly used.
- --
Ian Haggard || ian@shellus.com (work) || IanHaggard@juno.com (home)
------------------------------
Date: Wed, 2 Apr 1997 20:34:37 -0500 (EST)
From: Francesca Pardo <fp10@cornell.edu>
Subject: Re: Buying a Stock Before Or After A Split?
Mary Thompson asked whether to buy a stock before or after a split...
I think there's some statistical data that shows that stock prices
tend to go up after a split, although there's no fundamental reason
why they should. Possibly people who can't afford 100 shares of the
original stock are buying when the stock is cheaper? It's possible
that since this information was released the trend has changed with
more people trying to buy before a split. All in all it's not likely
to make a huge difference if you're planning to hold the stock a long
time.
- -Francesca (not a professional)
------------------------------
Date: Wed, 2 Apr 1997 20:35:22 -0500 (EST)
From: David Martin <dmartin@seabreeze.hc.ti.com>
Subject: Re: Avoiding Withholding Tax Penalties
>As long as one witholds last year's tax bill, you will not tax penalties.
>Is my logic correct ? Can I forget the W4 computation that I got from my
>tax software, TaxCut (got for 10$, later went on sale for 5$).
Some people need to pay estimated taxes, and these taxes must
be paid at certain regular intervals.
If your wife is getting mostly wage income, then I would
suggest she do the following (which is what I do): Use IRS Form 1040ES
for 1997 to estimate your 1997 tax liability. Add $100 so that you
will avoid getting a refund. Subtract how much taxes have already been
witheld. Divide the result by the remaining number of pay periods for
1997. Then adjust the number of exemptions so that you get that much
witheld every pay period. Since it is hard to get just the right
amount witheld, I usually add one extra exemption and then have a
little extra witheld to get it just right.
It is true that you probably can get away with a lot less
witholding, but this way you don't need to remember to save the extra
money, and, more importantly, you are less likely to attract attention
from the IRS.
-David Martin
------------------------------
Date: Wed, 2 Apr 1997 20:36:12 -0500 (EST)
From: David Martin <dmartin@seabreeze.hc.ti.com>
Subject: MMFs And Emergency Fund
Michael writes:
>We're currently building our emergency fund and hope to have it completely
>established by August 1997. We plan on keeping 50% of it in a moneymarket
>fund - low interest but easily accesible.
>We were thinking of keeping the other 50% in Treasury Bills ( no state taxes
>- -- currently 9%).
If you are simply trying to avoid state taxes with the
Treasuries, there are money market funds which invest only in US
Treasuries and thus are free from state taxes. There are even some
MMFs which invest only in state/municipal bonds and are thus free from
both state and federal taxes. Vanguard has several.
-David Martin
------------------------------
Date: Wed, 2 Apr 1997 20:40:30 -0500 (EST)
From: FW & SC <kafer@crl.com>
Subject: Consequences of Waiting for the IRS To Send Bill For Late Taxes
>Subject: Re: Late Estimated Taxes
>
>Since Form 2210 is rather complicated, why not just wait until the
>IRS sends you a bill?
>
>Barry
Peter and Barry--
Good question. When the IRS figures the penalty, they assume that you
received the income in a steady stream throughout the year. Let's use an
extreme example to illustrate: You received all your income on Dec 31,
1966. You are not required to pay taxes on that income until Jan 15, 1977.
But the IRS, not knowing when you received it, assumes you earned
one-fourth each quarter and calculates the taxes and penalties for each
quarter until the taxes are actually paid. So, you would be paying
penalties on taxes you didn't owe. Form 2210 "annualizes" the income into
each quarter when it was earned/received.
For Pers-finners who have accumulated enough income producing assets, Form
2210 is almost a necessity. Because: mutual funds are required by the
Internal Revenue Code to pay out their accumulated dividends and realized
capital gains before the end of the calendar year. Most funds pay these
distributions in December, thus loading a lot of an investor's income into
the final calendar quarter. Even if an investor paid the 90% taxes due on
Jan 15, without filing a Form 2210, the investor would be penalized on
"unpaid" taxes from the beginning of the year until they were actually paid.
And Form 2210 isn't that hard to do, if you carefully read each line and do
exactly what it says. As overburdened as IRS people are (see this week's
TIME magazine), the IRS instruction and form writers do a terrific job
making maniacal Congress's Internal Revenue Code reasonably easy to comply
with for the ordinary citizen. (Especially considering the complexity of
legislation.)
Frank
(Editor's Comment: If you do your taxes with Turbo Tax or other tax prep
software, Form 2210 is included. You can easily create a new return, put
in your income sources and dates, as well as any payments, and have the
program calculate the penalty. You can do "what ifs" by entering payments
you could make during the year. -IK)
------------------------------
Date: Wed, 2 Apr 1997 20:42:00 -0500 (EST)
From: "rip west" <rip@montrose.net>
Subject: Quicken vs. QuickBooks
Bonnie said:
<<
I'm about to start researching Intuit's products on the web, but since
it's come up here I wonder: does anyone have direct experience with both
Quicken and Quickbooks and care to comment on whether one or the other
might be better for both personal and small-business use?? Or is it really
best to bite the bullet and use both?
>>
Kind of hard to answer when we don't know the nature of your small business
use. I have used both. My suggestion would be to start with Quicken, see
what it offers, and,if you decide you still need something more, add
QuickBooks.
rip
------------------------------
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