Go to Jeff Salisbury LWGate Home Page.From: persfin-digest <owner-persfin-digest@shore.net>
Subject: persfin-digest V4 #68
Date: Fri, 1 Aug 1997 22:34:31 -0400 (EDT)
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persfin-digest Friday, August 1 1997 Volume 04 : Number 068
IN THIS ISSUE:
ADVERTISEMENT: MCI CONNECT FOR CC:MAIL [Oppenheimer Software <Connect-Sa]
Under New Tax Law, Bill Gates' Tax Rate is Less Than Mine [David Martin <]
Re: Ramifications of New Tax Law Changes (Estate Taxes & IRA) ["Mark J. W]
Re: Ira Krakow's well-spoken ramifications of tax changes ["Louis J. Sch]
Re: Ramifications of the Proposed Tax Changes? (AMT Issues) [Rich Carreir]
Proposed Tax Changes: The Roth IRA [JONESW@CCSUA.CTSTATEU.EDU]
Re: Non Deductible IRA [Avrum Lapin <avrum113@cyberg8t.com>]
RE: Effects of Proposed Tax Changes on Retirement Plans [paul.j.stadnik@]
Re:: Ramifications of the Proposed Tax Changes? (Gain on Home Sale) ["Ken]
Some Grad Students Can Live Very Well on Very Little [David Martin <dmart]
Joint Tenancy in Common-Quitclaim? [jmetz@slonet.org (JMetz)]
Web Site to Track US Savings Bonds Value [John <kahuna@financier.com>]
You mean how's my monkey beat the pro's:( He's more sucessful than me) ;-) [Randy Barnes <rbarnes@atl.mindspring.c]
RE: Driving across country [Jeff Morgan <Morgajs@parsec.com>]
How are these mutual funds ? [sprasad@hsmpk12a-61.Eng.Sun.COM (Shankar Pr]
RE: Driving across country [Tony_Babb@notes.pw.com]
Monkey Manager ["DCBaker" <ee03647@goodnet.com>]
Re: Did My Broker Short Me on Short Trades? [Rich Carreiro <rlcarr@animat]
Re: W4 Withholding Question [Rich Carreiro <rlcarr@animato.pn.com>]
Mutual Funds vs. S&P 500 [Stephen Brodeur <sbrodeur@draper.com>]
Re: Software to Track US Savings Bonds? [Susan Luntz <LUNTZ@fredonia.edu>]
Tracking US Savings Bonds [Stephen Brodeur <sbrodeur@draper.com>]
Savings bond software [David Minear <mineard@eburg.com>]
IRS Bankruptcy Settlement with my Friend [Frank Wagner <wagner@ececs.uc.e]
re: Did My Broker Short Me on Short Trades? ["Ken Meinken" <kmeinken@one.]
RE: VUL ["Cal Lester C.L.U." <Cal_Lester@msn.com>]
RE: VUL vs. Term Insurance ["Cal Lester C.L.U." <Cal_Lester@msn.com>]
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Date: Fri, 1 Aug 1997 21:57:38 -0400 (EDT)
From: Oppenheimer Software <Connect-Sales@mcimail.com>
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------------------------------
Date: Fri, 1 Aug 1997 21:59:27 -0400 (EDT)
From: David Martin <dmartin@seabreeze.hc.ti.com>
Subject: Under New Tax Law, Bill Gates' Tax Rate is Less Than Mine
> I'd like to start a thread on the effects of the proposed tax changes on
>our financial plans. Based on articles I read in the Boston Globe and the
>Wall Street Journal, I think the changes are profound and affect just
>about all of us. I see the following major effects:
1) I agree with Ira that the new tax laws will give capital gains
producing investments an even greater advantage over other sources of
income.
2) I dislike the current tax bill because it seems to be a significant
increase in complexity. They have created several new kinds of
deductions, tax deferred accounts, and several new tax brackets for
capital gains. Except for the rich who get most of their income from
capital gains, taxes will not change very much, but the complexity of
the taxes will go up. If the government really wanst to lower taxes,
they can simply increase the standard deduction or lower the tax
rates. This cuts taxes for everyone and doesn't make the tax code more
complicated. The current bill is just a step towards the bad old
system of lots of complicated deductions and high incremental tax
rates.
3) Actually, it would be best if they treated all forms of income the
same, whether from wages, interest, or capital gains. It is not the
government's job to influence how people spend and save their
money. Right now, between income taxes, direct social security taxes,
and social security taxes paid by my employer, my tax rate is about
33%. Under the new tax bill, Bill Gates, who makes most of his money
from selling his shares of Microsoft stock, will pay 20% of that to
the government. (I am ignoring state income taxes here.) I resent the
fact that I pay a higher percentage of my income to the government
than does the richest man in the world. I would not mind a flat tax
system where both Bill and I paid the same percentage, but having Bill
pay a lower percentage does not seem fair.
-David Martin
------------------------------
Date: Fri, 1 Aug 1997 22:02:17 -0400 (EDT)
From: "Mark J. Welch, Esq." <markwelch@ca-probate.com>
Subject: Re: Ramifications of New Tax Law Changes (Estate Taxes & IRA)
Ira wrote:
> 4) Expansion of estate tax exemption to $1 million will give more
> incentive to build up assets at retirement without worrying as much
> about estate tax consequences.
A. What does the law do? (A promise to reduce taxes next year)
It is extremely important to understand that the estate tax "exemption
equivalent" will NOT immediately be increased to $1 million, despite
frequent references to such an increase. As of mid-June, the agreement
was to increase the amount from the current $600,000 in very small
increments in early years, and then not at all for several years, before
jumping to $1 million in the year 2007 (which is beyond the political
horizon). I cannot locate any actual wording of the estate tax
provisions of the new budget agreement; I'm not sure if the same
schedule applies (if any changes were made, I'd certainly expect
them to involve reducing and not increasing any year's increase).
This is NOT an immediate increase in the estate tax "exemption,"
but a budget that forecasts that Congress will make increases in
future years. In the past, Congress has promised to do such
things in legislation, and then in subsequent budget years the
changes have evaporated. (The top 55% estate tax bracket
was scheduled to be eliminated and replaced with a 50% top
bracket for many years, until Congress decided to be honest
in 1993 and erase that language to save the embarrassment of
extending it every year.)
Thus, for decedents dying in 1997, the unified credit will only
exempt the first $600,000 of property from estate tax.
The law also includes provisions to exempt a portion of
certain closely-held (family) business interests, so that the
"exemption" effectively rises to $1.3 million (in 2007) for
certain persons leaving such interests to their families. It is
unclear to me what types of businesses will "count," or what
level of involvement may be required (e.g. will the heirs have
to work in the business to qualify for the exemption?), or
what recapture provisions may exist if the business is sold
within a few years after death.
B. Will people act differently? Of course they will.
Some people will decide that with a $1 million estate (or a $2
million estate for a married couple), they need not do tax planning.
Other people will mistakenly assume that the provisions effectively
increasing the "exemption" for estates of persons owning closely-
held business interests applies to their estate. As a result, more
estate tax dollars will be collected, because these people
misunderstood the law.
Of course, the vast majority of Americans will see no change
due to the increase in the estate tax exemption equivalent,
because the vast majority of Americans die with estates worth
less than $600,000. Only the richest 5% to 10% of Americans
will see any real benefit from this change.
As an estate-planning attorney, I expect that this change may
discourage some people from doing estate planning, and this
will actually INCREASE my profits, because I generate much
higher total fees from clients who do NO planning (when I
help administer their probate estate) than from clients who
hire me to do estate planning to avoid probate or to reduce
estate taxes. (See http://www.ca-probate.com/prob_fee.htm).
> 5) The special IRA (no deduction, but no tax on accumulated
> dividends and no penalty if withdrawn for college tuition or
> first home) is a good idea for helping people save for these purposes.
Beware: More money built up in an IRA (and thus tax-deferred)
will mean more money that MUST be withdrawn from the IRA
by the heirs, who will almost always pay a higher income tax
rate than the person who died. And unless the law was changed,
the heirs can NOT "roll over" a decedent's IRA into their own
IRA, but must instead begin taking immediate distributions (which
are subject to both income tax AND estate tax). Also, as IRAs
are permitted to grow rapidly, more and more of them will be
subject to the 15% penalties for excess accumulations (amounts
that cannot be withdrawn even if the maximum annual amount
is taken each year of your remaining life expectancy).
Certainly the move toward a "super-IRA" is a good trend, but it
will put more of a burden on individuals to carefully evaluate the
future tax impact as withdrawals are made. It may also create a
risk that people will use their IRA money for things other than
retirement, leaving them unable to afford their golden years and
adding to the imbalance of Social Security and Medicare.
Also, pay close attention to the tax "savings" in an IRA: It may
turn out that by using an IRA, I can avoid paying capital gains
taxes in the next few years, but in later years I will be forced
to pay MUCH HIGHER ordinary income taxes on those funds
as withdrawals are made, if they are not used for exempt
purposes (such as tuition or the purchase of my first home).
[I also wonder how much scrutiny the IRS will impose if
Grandma and Grampa use their IRA to pay a grandchild's
$18,000 tuition (if that's a proper exempt use) and then
Mom and Dad coincidentally give Grandma and Grampa
a tax-free gift of $18,000 in the same year.]
Most analysts do agree on one thing: the amendments made
to the tax code this summer will add to the complexity of
the tax code, and will result in more work (and fees) for tax
advisors. Although I make my money this way, I don't
think this is really a good trend for taxpayers.
Finally, when you talk to your tax advisor, make sure that
they tell you what they "think" the law "probably says" as
distinct from what they KNOW the law ACTUALLY SAYS.
At the moment I am writing this, there IS no law, and I have
not spent the time navigating through and downloading the
immense budget bill. It may be many days or even weeks
before the actual wording is actually settled, and most tax
advisors won't really understand its provisions for many
weeks or months. The IRS regulations corresponding to
these new laws may not be finished for several YEARS.
(And your tax advisor may be spending all his or her time
in the next 15 days just finishing the 1996 income tax returns
for clients who obtained an extension until August 15.)
- -- Mark J. Welch, Attorney at Law, Pleasanton CA (510-462-8483)
- -- http://www.ca-probate.com and http://www.markwelch.com
- -- This email is NOT legal advice, and is NOT confidential.
------------------------------
Date: Fri, 1 Aug 1997 22:03:03 -0400 (EDT)
From: "Louis J. Schwarz, CFP, RFC" <sfc@clark.net>
Subject: Re: Ira Krakow's well-spoken ramifications of tax changes
No tax laws are perrrrrfect!!! There will be always loopholes and
opportunities soon!
However, I am very concerned about the issues regarding 401K (Keogh) and
403b (tax-deferred annuities/mutual funds for non-profit instutition
employees) vs. new IRA plans. We have to calculate the pros and cons for
those varieties of retirement plans - these will take time to analyze
and to share with other professionals. Also, there will be always some
tax law changes in future like we already had in past years, especially
since the new comprehensive tax regulation (called Internal Revenue Code
"IRC") changes in 1954.
Also, those mutual fund investors will face different details on their
1997 Form 1099 statements next January - one for dividends and
short-term gains up to July 29th for less than 12 months proceeds, and
past July 29th for less tha 18 months proceeds, and three different long
term gains (one for up to May 7th, another one between May 7th and July
29th for 12 months at capital gains tax rate, and another one after july
29th for 18 months at capital gains tax rate. What complications the
Congress and the White House create for us - but good business
opportunties for tax practitioners!!!
For retirement plans withdrawals, there will be more complicated income
tax return forms to tell which one is taxable and not taxable, etc!
More work for taxpayers to keep good records!!!
Perhaps today's computers can handle such record-keeping details! Sigh!
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
Louis J. Schwarz, CFP, RFC TTY 301-587-5996
Schwarz Financial Concepts FAX 301-587-5997
814 Thayer Avenue, Suite 301 Voice Relay 800-735-2258
Silver Spring, Maryland 20910-4500 Email: sfc@deafcfp.com
------------------------------
Date: Fri, 1 Aug 1997 22:04:19 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Ramifications of the Proposed Tax Changes? (AMT Issues)
> I've heard there's a proposed change in the Alternative Minimum Tax that
>might lessen the good effects of the tax changes. Overall, I like the
>proposed changes. How much chance is there of passing these proposals?
You have this backwards -- if the AMT is *not* changed, it'll undercut
a lot of the tax cut. Basically, AMT is a flat tax of 26% of AMT
income. AMT income is your taxable income with many of your
deductions added back in, but with a huge exemption. To the extent
that tax figured by the AMT calculation exceeds tax figured by the
regular method, you must pay the difference. So, let's say you have a
two-income family who sells off a block of stock they have a big gain
on. Let's say that gain is taxed at 18% (one of the proposed rates).
If the amount of that gain relative to the rest of their income and
the AMT exemption is large enough, the AMT calculation will force the
gain to essentially be taxed at 26%, wiping out most of the cap gain
tax cut. Here's an example (*Warning* -- I'm picking the numbers from
a hat, though I think they're in the ballpark of the real numbers) of
how it could happen:
Assume:
* single taxpayer
* $25,000 in regular income [a retiree, perhaps]
* $225,000 in gains eligible for 18% treatment under new regular rules
[our retiree decided to cash in some mutual funds he had been building
up over the years]
* $10,000 in deductions not allowed under AMT
* $40,000 AMT exemption
Regular tax under current law:
$25,000 - $10,000 = $15,000 of taxable ordinary income ->
$2,250 tax on that plus gains tax of 0.28*$225,000 = $65,250 total tax.
Regular tax under proposed law:
$25,000 - $10,000 = $15,000 of taxable ordinary income ->
$2,250 tax on that plus gains tax of 0.18*$225,000 = $42,750 total tax.
Wow! A $22,500 tax cut...or so it appears at first...now check AMT...
AMT tax:
$25,000 regular income + $225,000 gains - $0 deductions - $40,000 exemption =
$210,000 of taxable ATM income = $210,000 * 0.26 = $54,600 total tax.
So the $22,500 tax cut is reduced to a $65,250 - $54,600 = $10,650 tax
cut. Over half of the tax cut has been wiped out by the AMT.
Another example is given by this morning's Boston Globe. It shows how
much of the per-child tax credit could be wiped out for many people by
the AMT.
Remember -- legislators speak with a forked tongue. Keep your eyes
on what they actually do (and when/if the bill actually gets drafted and
passed, you might want to hang out on misc.taxes.moderated to hear about
just this sort of thing).
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Fri, 1 Aug 1997 22:04:46 -0400 (EDT)
From: JONESW@CCSUA.CTSTATEU.EDU
Subject: Proposed Tax Changes: The Roth IRA
The idea of the new Roth IRA is that you put post-tax money in it and all
earnings are income-tax-free, if you keep it for 5 years and after 59.5.
This means that it is a far better deal than non-tax-sheltered investments,
even if most of the latter's earnings are taxed at the new capital gains
rate of 20%. 20% is worse than 0%. So I do not see how it can be a
disincentive to "sock money away in retirement plans."
The current deductible IRA is a slightly better deal than the new Roth IRA
for most people, except that it has a lower effective contribution limit.
It is effectively tax-free on the post-tax value, just like the Roth IRA.
So it is still far better than paying 20% capital gains. Again, 20% is
worse than 0%.
Bill Jones
------------------------------
Date: Fri, 1 Aug 1997 22:05:41 -0400 (EDT)
From: Avrum Lapin <avrum113@cyberg8t.com>
Subject: Re: Non Deductible IRA
At 8:18 PM -0400 7/30/97, Rich Carreiro wrote:
>>Rememebr that what ever you put in the IRA is stuck there until age 59 1/2
>>(or there is a penalty for premature withdrawal). You might want to
>>investigate a low cost annuity where you can with withdraw the principal
>>in the future.
>
>You can in fact withdraw money from an IRA account penalty-free before
>age 59.5. The catch is that you have to do it in substantially equal
>amounts and must maintain the withdrawals for the *longer* of 5 years
>or until you reach 59.5. Any screw-up and all withdrawals under this
>plan are retroactively assessed the penalty.
>
>An interesting sidelight is that this type of withdrawal is one of the
>only times where IRA accounts are considered individually instead of
>aggregated into one in the eyes of the IRS. You can calculate the
>withdrawals and make the withdrawals from a single IRA account of your
>wchoosing. You do not have to consider the total value of all your IRA
>accounts (this has been discussed a number of times on
>misc.taxes.moderated).
>
Well I am almost 59 1/2 so the comments doesn't apply to me.
Somewhere around age 50 my industry started to go into a tail spin and I
worried that my job would not last until the early retirement age (55) so I
saved more agressively and was able to retire affordably at age 56 when my
firm sold out and the buyer relocated the facility out of state. (I should
add that the relocation package was acceptable, the relocation site was not)
Had I been been aware that the IRA money could have been withdrawn without
penalty before age 55 and that the individual accounts were separable, I
might not have saved so aggressively after age 50 and my retirement would
have been less comfortable (or I would have had to relocate). On the other
hand less worry may have resulted in more hair on my head.
Avrum Lapin
Upland., CA
------------------------------
Date: Fri, 1 Aug 1997 22:09:41 -0400 (EDT)
From: paul.j.stadnik@bangate1.TEK.COM
Subject: RE: Effects of Proposed Tax Changes on Retirement Plans
On 31 Jul you wrote:
>> 3) Some disincentive to sock away money in retirement plans. Why not pay
>> the income tax now, invest in growth stocks, and pocket the capital gain
>> (at lower rates) when retiring, as opposed to locking money in an IRA and
>> taking the distribution as ordinary income. The quick tax exemption for
>> the IRA may not be worth the hassle of not being able to touch the money
>> without severe penalties.
I too was intrigued with this aspect of the proposed tax changes.
My understanding is that the cap gain rate goes even lower (to 18% for
assets held five years after 2001??). If your tax bracket goes down
after retirement (my understanding is if you're in the 15% bracket, the
cap gain rate for 5 year assets will be 8%) the tax savings are even
larger.
For long term investing, it seems very attractive to use after tax funds to
generate long term capital gains taxed at these new lower rates, rather
than IRA / 401(k) investments which will be taxed as ordinary income.
Remember that the accumulated earnings in such accounts should dwarf your
invested amount.
I see one BIG problem, however. This assumes these tax incentives stay in
place over the long term (not only till I retire, but through my
retirement). The tax code has substantially changed at least four times
in the last 20 years (1981, 1986, 1993, 1997). If I remember correctly,
one of these reforms treated capital gains as ordinary income; a later
change put in a max cap gain rate of 28%, and the proposed reforms change
this again. I am not comfortable making a very long term decision based
on the assumption that these cap gain treatments will be in place 40 years
from now.
What happens during a 21st century financial crisis (Baby Boomers social
security or medicare entitlement funding) and Congress eyes these large
accumulated assets?
(Editor's Comment - An excellent question. I thought we had a deficit.
How does this tax cut decrease it? -IK)
------------------------------
Date: Fri, 1 Aug 1997 22:10:57 -0400 (EDT)
From: "Ken Meinken" <kmeinken@one.net>
Subject: Re:: Ramifications of the Proposed Tax Changes? (Gain on Home Sale)
>
> 2) Expansion of tax free exemption of capital gain on sale of primary
> residence (to $500K, I believe). Should encourage home ownership and
> provide more capital to older home sellers.
>
I was thinking the opposite: people who have highly appreciated
houses and really want to move to an apartment can now do so without
a big tax hit. I suspect there are a lot of people in homes who could
not afford the tax hit to get out of them. I think apartment REITs
are going to benefit (but I think most REITs are already overpriced.)
> 3) Some disincentive to sock away money in retirement plans. Why not pay
> the income tax now, invest in growth stocks, and pocket the capital gain
> (at lower rates) when retiring, as opposed to locking money in an IRA and
> taking the distribution as ordinary income. The quick tax exemption for
> the IRA may not be worth the hassle of not being able to touch the money
> without severe penalties.
The other unknown is what will the tax rates be when one retires?
There is definitely something to be said for paying the taxes early.
>
> I've heard there's a proposed change in the Alternative Minimum Tax that
> might lessen the good effects of the tax changes. Overall, I like the
> proposed changes. How much chance is there of passing these proposals?
The complexities of the proposals are mind-boggling. Invest in tax
preparation companies! (What ever happened to last year's promise to
*simplify* the tax code?)
Ken
kmeinken@one.net
------------------------------
Date: Fri, 1 Aug 1997 22:14:54 -0400 (EDT)
From: David Martin <dmartin@seabreeze.hc.ti.com>
Subject: Some Grad Students Can Live Very Well on Very Little
Terry writes:
>(Well, OK, you know what I mean) At the very time when they can make
>larger contributions to their retirement fund, they have fewer years to do
>that. Starting earlier would be good, but I couldn't have put money into
>a retirement fund when my only income was from a graduate assistantship.
A lot depends on the spending habits of the graduate
student. My stipend for my 6 years as a graduate student ranged from
about $12,000/yr to about $16,000/yr. Despite this low salary, I
managed to put $2,000/yr into my IRA, plus save an additional
$2,000/yr in other investments. When I finally graduated, I had a
higher net worth than many of my friends who had been working at
"real" jobs for 5 years. The trick is to live within your means. If
you are smart, single, young, and part of a university community, you
can often live very well on very little.
-David Martin
------------------------------
Date: Fri, 1 Aug 1997 22:15:32 -0400 (EDT)
From: jmetz@slonet.org (JMetz)
Subject: Joint Tenancy in Common-Quitclaim?
My wife and I borrowd money from her parents to buy property and build
our house. As a condition for borrowing the money, my wife's parents
were put on the deed as joint tenants all in common. Now that we have
paid back the money, and my wife's father is deceased, only my wife,
myself, and her mother remain on the deed as joint tenants in common.
My mother-in-law no longer has an interest in our property. Should
she file a quitclaim to the property, and should my wife and I refile
the deed as simply joint tenants? We live in California. Please
help. Thanks.
------------------------------
Date: Fri, 1 Aug 1997 22:16:07 -0400 (EDT)
From: John <kahuna@financier.com>
Subject: Web Site to Track US Savings Bonds Value
Not sure about a program for calculating Saving Bonds' interest, but you
can go to a website and calculate a bond's value:
http://www.ny.frb.org/pihome/svg_bnds/sb_val.html
------------------------------
Date: Fri, 1 Aug 1997 22:17:11 -0400 (EDT)
From: Randy Barnes <rbarnes@atl.mindspring.com>
Subject: You mean how's my monkey beat the pro's:( He's more sucessful than me) ;-)
To Robert, and the rest of the curious,
In my earlier post I indeed meant "MONKEY", and not money. In the early
part of this year I decided to start a "fund" and put a monkey in
charge. It is my sincere belief that a superior performance can be
achieved by a "monkey" vs. the best of the so-called money managers.
We'll save a bundle in management expenses. For the price of a few ripe
bananas the monkey will put us in the top percentile as compared to the
S&P 500 and other money managers.
For the fund's first quarter (2Q97) my monkey posted a return of 19.21%,
before dividends!, vs. the S&P 500 at 17.46% (which includes
dividends). The fund began April 1, 1997 and will continue to be
managed as a simulated fund until I get fed up with it, or die. Probably
the latter. This data is on a spreadsheet and will be available on my
soon-to-be MonkeyFund web site. I'll keep you posted. ( I also have a
real life, so this is a slow process.)
IK - This is a dart board type, random pick fund. I hope that it'll be
an actual fund run with real $$ in perpetuity, kicking off real income
to educational and charitable organizations. We'll give Wall St. Hell!
Money managers will be loosing their job if they can't beat the monkey!
I've got big plans for the monkey and hope the idea flies. At the very
least, I'll keep the fund on the web for all to see, whether or not we
ever see a dime.
R.Barnes, aka The Monkey
------------------------------
Date: Fri, 1 Aug 1997 22:18:52 -0400 (EDT)
From: Jeff Morgan <Morgajs@parsec.com>
Subject: RE: Driving across country
<...>
Here's a couple of hints that could save you $$$.
<...>
There's no need to carry a lot of cash or travellers checks, just pay by
credit
card (keep the receipts) and use an ATM as necessary for loose change.
<...>
You might want to check with the bank first.
Personally, I'd rather carry a couple hundred in cash than
get taken for $2.00 a pop every time I used an
out-of-state ATM.
Matter of opinion, I suppose. Risk vs. convenience.
Cheers.
- --
Jeff Morgan - morgajs@parsec.com
------------------------------
Date: Fri, 1 Aug 1997 22:19:27 -0400 (EDT)
From: sprasad@hsmpk12a-61.Eng.Sun.COM (Shankar Prasad)
Subject: How are these mutual funds ?
Hi
I have a couple of questions on mutual funds. I am looking to
invest in two types of funds:
a. financial sector:
b. small cap value sector:
I find (from www.stocksmart.com, www.morningstar.net) that
FSFSX (Invesco Financial Services Fund) & OAKSX (Oakmark Small Cap Fund)
respectively have done well (STAR rating from stocksmart,
4 or 5 stars from morningstar). They also have reasonably
low minimums ($1000). The expenses for OAKSX (1.50%) seems
slightly on the higher side, but in range for small-cap funds.
I have the prospectus for OAKSX (prospectus for FSFSX is in
the mail - but I had a look at it at the Invesco website). Both
seem satisfactory.
I am looking for suggestions / opinions from people about two
issues:
1. Are the two sectors I am looking at (financial, small cap) good
ones for the future ? I know that this is sort of asking for
predictions, but I am looking for opinions and ideas.
2. How do these specific funds rate within these sectors ? Are
there other better (cheaper in terms of operating expense, or
other reasons) funds in other families ?
- --
Regards
Shankar Prasad
sprasad@eng.sun.com
------------------------------
Date: Fri, 1 Aug 1997 22:20:07 -0400 (EDT)
From: Tony_Babb@notes.pw.com
Subject: RE: Driving across country
I agree, I'd carry a couple of hundred cash. What I should have said was
pay for major purchases (Hotel/Gas/Meals-if there's several of you) by
credit card.
Loose change would cover tolls, snacks, souvenirs etc.
Thanks for clarifying.
------------------------------
Date: Fri, 1 Aug 1997 22:21:48 -0400 (EDT)
From: "DCBaker" <ee03647@goodnet.com>
Subject: Monkey Manager
> Randy Barnes wrote: "My monkey consistently beats the top fund
> managers and always will."
>
> Assumming you meant money instead of monkey I'm sure many of us would
> love to know how you *always* will beat the top fund managers.
>
Boy, am I embarrassed!
I was about to make an offer on that monkey!
- --Dave.
(Editor's Comment - The monkey also manages a hedge fund by eating the
hedges. :) -IK)
------------------------------
Date: Fri, 1 Aug 1997 22:22:14 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Did My Broker Short Me on Short Trades?
>I'd like to know whether a couple of things my broker did when I
>shorted stock is typical: First, the broker didn't pay interest on
>the funds generated when I shorted the stock; Second, it marked to
I believe this is typical, and I can see the rationale. When you
short, you are essentially borrowing the shorted stock from your
broker. Can't really expect anyone to lend for free, so you could
view the broker's keeping the interest on the proceeds of the short
sale as effective interest paid by you on the stock loan.
>market daily, causing my cash balance on deposit to drop when the
>stock price rose, which resulted in less interest being paid on my
>cash on deposit. Do most brokers handle shorting this way?
I believe this practice may well be required by law and/or
NASD/exchange rules. Basically the broker keeps a segregated cash
amount equal to the value of the shorted stock. This cash serves as
collateral for the stock loan. The broker wants his collateral to
always equal 100% of the loan value. Therefore he marks it to market.
As the stock rises, money is sucked from your non-short account,
lowering your credit balance/increasing your debit balance. As the
stock falls money will be pumped into your non-short account, raising
the credit balance/lowering the debit balance.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Fri, 1 Aug 1997 22:22:51 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: W4 Withholding Question
>It was my understanding that if you wanted extra money taken out of your check
>for taxes you should claim Single-0 even if you were married.
>
>BUT, if you get taxed extra for being married, wouldn't it make sense to claim
>MARRIED-O?
No. If you claim Married-0, you'll have less taxes taken out than Single-0.
The problem is that the W-4 worksheet doesn't seem to properly deal with a
working spouse, and it does not at all deal with non-wage income.
I really recommend working it in reverse. Get a copy of the 1997 estimated
tax form and run an estimate of your taxes. Then figure out how much would
have to be withheld from each paycheck to achive the desired level of withholding. Finally, use that to determine what to claim on your W-4.
>Unfortunately, I don't have access to the payroll tables they use
>when figuring your check.
Actually, you do. Go to the IRS WWW site and grab Publication 15. It
has the withholding tables and formulas that employers must use.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Fri, 1 Aug 1997 22:23:48 -0400 (EDT)
From: Stephen Brodeur <sbrodeur@draper.com>
Subject: Mutual Funds vs. S&P 500
>
>> Right now it is a statistical fact that greater than 50% of mutual
>> funds have not matched the return on the S&P 500 index.
>
>What's the time period for this statistic?
According to _The Motley Fool Investment Guide_, [1996, by David and Tom
Gardner] Chapter 5, p.45, they cite research by Robert Sheard. Details of the
the period covered are probably available at the MF website,
http://www.fool.com. I don't believe the statistics are more than a year or
two old, though.
The statistics they present are:
" 1. Of 5845 funds, only 2615 have a 3-three year track record, and of those
2615 funds 80.5 percent of them lost to the S&P 500 return of 7.86 percent
annual growth."
"2. Only 1936 funds have been around for 5 years. Of those, 79.9 percent lost
to the S&P 500 return of 10.78 percent annual growth."
"3. Only 780 of the funds have a 10-year track record. Of those, 87.3 percent
lost to the S&P 500 annual return of 13.82 percent."
Number three, restated, says that only 99 funds have been able to meet or
beat the S&P 500 over the ten year period.
- -Steve Brodeur (x2496)
------------------------------
Date: Fri, 1 Aug 1997 22:24:10 -0400 (EDT)
From: Susan Luntz <LUNTZ@fredonia.edu>
Subject: Re: Software to Track US Savings Bonds?
Ray MscKinnon asked for a recommendation for software to track US
Savings Bonds
I've been using various version of the US treasury Department software
for tracking Bonds for some time and I find it to be excellent.
The latest version can be dowwnloaded (for free) at
http://www.publicdebt.treas.gov/sav/savwizar.htm
Happy computing and investing!
------------------------------
Date: Fri, 1 Aug 1997 22:24:39 -0400 (EDT)
From: Stephen Brodeur <sbrodeur@draper.com>
Subject: Tracking US Savings Bonds
> I am looking for software to help track US Saving Bonds?
A great site for information and tables:
http://www.ny.frb.org/pihome/svg_bnds/
An online calculator (also a link from the previous page):
http://www.ny.frb.org/pihome/svg_bnds/sb_val.html
A downloadable, self-extracting Windows program (also a link from the
ny.frb.org NY Federal Reserve Bank page):
http://www.publicdebt.treas.gov/sav/savwizar.htm
The Savings Bond Wizard program is pretty good- I've downloaded it and used
it myself. It lets you set up and track 'portfolios' of bonds, providing
redemption values. The site also provides downloadable updates for most
recent rates to allow for keeping your bond records current (although I
haven't tried it yet). I think it's a pretty good tool and I've recommended
it to others.
There's also a (self-extracting) DOS savings Bond Redemption Calculator
available from the same folks, but I haven't tried it.
- -Steve Brodeur (x2496)
------------------------------
Date: Fri, 1 Aug 1997 22:26:35 -0400 (EDT)
From: David Minear <mineard@eburg.com>
Subject: Savings bond software
Ray Mckinnon asked for some software to track savings bond purchases.
Pick up a copy of Savings Bond Wizzard (free of charge) from the Bureau of
the Public Debt... Go to "www.publicdebt.treas.gov"
You'll find lots of information, including the software.
------------------------------
Date: Fri, 1 Aug 1997 22:27:11 -0400 (EDT)
From: Frank Wagner <wagner@ececs.uc.edu>
Subject: IRS Bankruptcy Settlement with my Friend
Some time I posted an enquiry here asking about a friend--he had declared
bankruptcy, left with about $2,000 owed to the IRS, by the time he was able to
start paying this grew to $3,000. He was paying them back at $25 a month.
I commented that I thought this was unreasonable because, on the one hand,
it was costing the IRS more than $25 to collect his payment.
Someone commented that the IRS doesn't make payback arrangements that
can't be paid back.
Looking closer I find out that about $5 of that $25 payment goes to reduce
principle. So, sure, he'll be able to pay them back -- in 62 years.
------------------------------
Date: Fri, 1 Aug 1997 22:27:37 -0400 (EDT)
From: "Ken Meinken" <kmeinken@one.net>
Subject: re: Did My Broker Short Me on Short Trades?
I think what you saw is typical. Aufhauser does pay interest on the
proceeds of the short sale, but I think that is unusual.
Ken
------------------------------
Date: Fri, 1 Aug 1997 22:30:38 -0400 (EDT)
From: "Cal Lester C.L.U." <Cal_Lester@msn.com>
Subject: RE: VUL
>From: JONESW@CCSUA.CTSTATEU.EDU
>Subject: VUL is SOMETIMES a bad idea
I have always bought term life insurance and invested the difference in
my 403b, which has stronger tax advantages for me than using permanent
life insurance.
Besides, the only way to avoid ALL taxes on the VUL cash value is to die.
>>>>Bill, you make an interesting argument. Unfortunately I have neither the
time nor the energy to check all of the figures that you used in your
calculations. However I would take exception to the last line above. A U/l or
V/U/L policy permits the "withdrawal" of portions of the Cash value Account,
on which there is neither interest or tax to be paid up to the "basis",
which is the total of ALL premiums paid in to date, including the cost of
riders.
Many policies then permit an INTEREST FREE LOAN ( or a wash loan ) for the
balance of your life. In this way, one can receive many times the amount paid
in while ALIVE, Tax Free. There is one caveat though, and that is that the
policy MUST remain IN FORCE until you die. As long as there is one (1) net
dollar paid out as a Death Benefit, then there would NEVER have been any taxes
paid by either the insured or the beneficiary.
Cal Lester CLU
------------------------------
Date: Fri, 1 Aug 1997 22:31:24 -0400 (EDT)
From: "Cal Lester C.L.U." <Cal_Lester@msn.com>
Subject: RE: VUL vs. Term Insurance
>Subject: Re: Re: VUL vs. Term Insurance
CL> Very simply, an Income Tax Deferred investment of any kind will
CL> grow faster and larger than any similar currently taxable
CL> investment over time.
The key word here is "similar." The statement above is true if both
investment vehicles have the same returns AND ALSO HAVE THE
SAME COSTS AND BOTH THE COSTS AND THE RETURNS ARE PAID
AT THE SAME TIMES.
>>>> I really have no intention of getting into a shouting match, "my old man
can whip your old man". However, I was under the impression that "similar"
meant the same!
CL> ...At some given point in time, the actual premium for the term
CL> policy in question, MUST surpass the original premium for the
CL> V/U/L policy...
Are you saying that there is no such thing as "Level-Premium Term
Insurance?" Or are you saying that "Level-Premium Term Insurance"
costs more than a V/U/L policy with the same death benefit?
>>>> Most decidedly NOT. However in order for a Term Premium to be LEVEL, the
insured is required to OVERPAY during the early years to OFFSET the higher
cost during the later years. And YES, IF the Term policy is kept in force for
twenty or more years ( and there are many reasons why Death Protection might
be needed for more than twenty years), then the TOTAL net cost of the Term
insurance will surpass the Total net cost of the U/L or V/U/L policy.
CL> ...at which time (if you are doing a real apples & apples
CL> comparison) you would have to start to deplete the investment
CL> account to pay the DIFFERENCE to maintain the term policy.
Only if you want to throw out the baby in order to save the bath-
water. By the time this occurs, if the client has been half-way
successful with his (or her) investments, they will have grown
to such an extent that the term policy will no longer be needed.
>>>> using your analogy, the successful investor ( and how many are really
successful ) might have not only amassed sufficient assets to offset the Death
Benefit of a life insurance policy, but might at that time ( which by the way
is when MOST Term policies get expensive ) require INEXPENSIVE dollars to pay
Federal Estate Taxes.
CL> Is it morally wrong for a person to get paid for his labors???
Of course not. BUT, WHEN THAT PERSON IS PAID ON COMMISSION,
then there is a built-in incentive for him (or her) to sell THOSE
PRODUCTS WHICH PAY THE HIGHEST COMMISSIONS, even if those
products are not necessarily the best ones for the client.
>>>> Would you therefore be inferring that if the payment was based on
something other than a "commission" that the seller or agent would be " more
honest ". A successful Life Insurance, one that has been in the industry for a
number of years, and has attained the designation of CLU, ChFC, or CFP would
have certainly learned that it is always in the best interest of the agent to
provide the best product for the client, regardless of commission structure. I
notice that you are proud of your designation ( as well you should be ). Do
you think that the designations that I have listed are of a lessor value to
the public??
CL> The "premium" will be less, but the NET COST in every comparison
CL> that I have run is higher.
Every NET COST comparison made by a life insurance agent that I
have ever seen has ignored the "time-value of money."
>>>> Why do you make unfounded assumptions??? Did it not occur to you that I
and the industry programmers might understand the time value of money, and
have included it in the calculations. For shame........
Cal Lester CLU
Insurance Course CoOrdinator
Broward Community College
------------------------------
End of persfin-digest V4 #68
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