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It’s a shame, really, that much of what is offered here – at no charge – is not taught in the public schools. Why is it that you can graduate in the top of your high school class and know next to nothing about credit card debt, adjustable-rate mortgages, or 401(k)s? Founded in 1999, the goal of... More
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  • The $64,000 Retirement Question: Should We Sell Assets Now to Avoid Higher Taxes Later?

    by Bob Carlson, Investment U Research
    A 2010 Investment U White Paper Report

    To the surprise of absolutely no one, our taxes are heading higher.

    It's still too early in the game to know which taxes will increase and by how much.

    But based on the consensus coming out of Washington, it's likely that the 2003 tax cuts will expire at the end of this year.

    If the consensus is right, many people would move into a higher tax bracket and establish a top tax bracket of at least 39.6%.

    It's also likely that the long-term capital gains rate will increase to 20% (or more). And the maximum rate on qualified dividends will jump, perhaps to the top ordinary income tax rate.

    Given such prospects, an obvious question arises for many people in or near retirement - should we sell assets now (or take other steps) to avoid higher taxes later?

    I don't have a simple "one size fits all" answer. But I can share the key factors you need to take into account before making this critical decision. First things first, we have some time...

    When We'll See Higher Tax Rates...

    Higher tax rates aren't coming until 2011, at the earliest. Policymakers may even hold off an extra year (or two) on any increases, given the severity of the Great Recession.

    We'll probably know for sure about 2011's tax rates by October.

    Realizing that uncertainty never fosters prudent decision-making; there's no need to rush a decision.

    We're better served by waiting a few months until we have a good grasp of what the rules will look like.

    Then, once those details emerge, we can consider strategically selling assets in an effort to minimize the effect of higher taxes. Here's my gameplan for doing exactly that...

    Qualified Retirement Plan Accounts

    For starters, consider taking distributions from:

    • 401(k)s,
    • IRAs,
    • Or any other qualified retirement plan.

    Remember, distributions from these plans are taxed at ordinary income rates. So, by taking distributions early, you avoid higher ordinary income tax rates in the future.

    What's more, if you reinvest the distributions in a taxable account, in assets you can hold for a long time - like solid, recession-resistant, dividend-paying stocks or bonds - your future gains will be taxed at the long-term capital gains rate, which is likely to be lower than the ordinary income tax rate.

    That being said, it's critical that you estimate how much tax rates have to rise to make it profitable to give up the tax-deferred advantages that come with investments in a qualified retirement plan. (In fact, you may want to ask your tax advisor to help with the calculation.)

    Another move worthy of consideration is converting your traditional IRA or other qualified retirement plan to a Roth IRA. Doing so would allow you to pay taxes at today's lower rates. (In our January issue, Marc Courtenay discussed Roth IRA conversions.)

    Taxable Investment Accounts

    The best way to handle assets that have meaningful capital gains, already in a taxable account, depends on... Continue Reading

    Disclosure: No Position
    Aug 19 10:28 AM | Link | Comment!
  • Sin Stock Investing: Make 99.90% on Vice Funds With Naughty Growth
    by Alexander Green, Chief Investment Strategist
    A 2010 White Paper Research Report

    Though many investors have heard of socially responsible funds, too few know the value of sin stocks?

    While socially responsible funds try to be environmentally and socially responsible, sin stocks look to capitalize on both the constancy of human vice and the superior performance of companies that cater to it.

    And they lead to outstanding investment performance almost as surely as vice itself leads to perdition.

    Take a closer look at what we mean...

    The Good, the Bad and the Most Profitable...

    If you were given the choice between investing in the environmentally and socially responsible Calvert Conservative Allocation Fund (MUTF: CCLAX) or its polar opposite, the Oxford Club's Seven Deadly Sins Portfolio, which invests primarily in tobacco, alcohol, defense and gambling - which would you choose?

    I'll give you a hint. Your profits would have been much bigger if your conscience weren't your guide.

    The Calvert Fund has delivered smaller returns since March 2009, only gaining 16.39%. The Seven Deadly Sins Portfolio has delivered a much larger positive performance over that same period of time, gaining 99.90%.

    Admittedly, this was a very favorable time to be invested, but this performance is no aberration...

    Sin stocks also outperform their more morally conscious brethren during traditionally tough market periods. Merrill Lynch recently examined the performance of alcohol, tobacco and casino stocks in all recessions since 1970 and found that while the S&P 500 fell 1.5% on average, vice stocks rose an average 11%.

    Sin Stock Investing & The Phillip Morris Company

    Lets not forget that Phillip Morris Company (NYSE: PM) has been one of the best performing stocks on the NYSE. From 1972 to 2001, during one 30-year stretch, the tobacco giant averaged a gain of 17.8% per year.

    Demand for tobacco is trending higher in emerging markets, compared to declines in developed markets. Philip Morris books 60% of sales in these markets already. And it continues to find new above-average growth opportunities in places like India, Bangladesh and Vietnam.

    Not to mention, the company owns seven of the leading 15 international brands, including the hands down leader, Marlboro. So it's a shoe-in to win the majority of the market share in these new markets.

    Such strong brand recognition also conveys another big advantage. It allows the company to charge premium prices. And it does.

    In the last year, Continue Reading Report...

    Disclosure: No position
    Aug 13 1:34 PM | Link | Comment!
  • The Five-Step Market-Beating Formula for Successful Investing
    Source The Five-Step Market-Beating Formula for Successful Investing

    by Dr. Mark Skousen, Contributing Editor Investment U 
    Issue #1312

    If you want sound, classic investment advice, you've come to right place.

    The lessons you're about to learn are timeless and straightforward... but sadly, hardly ever followed.

    What's more, the financial crisis has actually substantiated this man's classic formula for successful investing.

    The formula I'm talking about comes from Burt Malkiel, finance professor at Princeton and author of the classic, A Random Walk Down Wall Street. You may recall that Alexander Green recapped his FreedomFest debate with Burton Malkiel on July 12...

    As host of the annual FreedomFest event in Las Vegas, I'd invited Malkiel to participate in two sessions. One was at a luncheon, with his excellent speech, entitled: "My 40 Years Walk Down Wall Street: Timeless Lessons." I highly recommend you get a copy for only $5 (call: 866.254.2057 for details on how to order the CD).

    Malkiel's other speech was entitled, "Can You Beat the Market?" This was what Alex talked about in his column here a few weeks ago. And with good reason - as Malkiel's five rules illustrate...

    Five Simple Steps to Beat the Market

    Here's Burt Malkiel's five-step market-beating formula:
    1. There's No Need to Time the Market: Plain and simple, buying and selling in the short run doesn't work over the long term. We talk about this frequently in Investment U. In order to make market timing work, you have to be right most of the time when you buy and sell. The vast majority of investors can't do that consistently. And besides, you don't need to time the market to be successful.

    2. Use Dollar-Cost Averaging: Malkiel showed that dollar-cost averaging actually does better in a volatile market (like now) than in a steadily rising one. He cited an example: If you invested $1,000 a year for five years, you'd have $6,167 in a volatile (bear-bull) market versus only $5,915 in a steadily rising market.

    3. Rebalance Your Portfolio Annually: Malkiel found that from January 1996 until December 2009, annual rebalancing between a stock and bond index provided lower volatility and higher returns. The best strategy is to sell your portfolio's big winners and buy its biggest losers once a year.

    4. Diversify, Diversify, Diversify: It sounds obvious, but diversification is crucial. Malkiel argues that simple diversification increases your returns with less risk (volatility). He uses the following extremely conservative portfolio: 50% bond fund, 25% stock index fund and 25% international stock index fund.

    5. Cost Matters: The vast majority of actively managed accounts underperform the market indexes over the long run, especially because they cost more to run. So use non-actively managed index funds by the cheapest fund company - Vanguard.
    Turn $100,000 into $250,000 in 10 Years

    Putting all the parts of Malkiel's formula together - index funds, dollar-cost averaging, rebalancing and diversification - he revealed the following chart to illustrate how a conservative investor would fare during the "lost decade" (2000-2010) when the stock market fell.

    Burton G. Malkiel Shows How Conservative Investors Faired During The Lost Decade

    So let's say you started with a $100,000 portfolio in January 2000.

    You allocate your assets in the following way: 50% in a bond index, 25% in a U.S. stock index and 25% in an international stock index.

    If you added $1,000 per month over the 10 years, you'd have invested a total of $220,000. With annual rebalancing and diversifying, you'd have a portfolio valued at $250,000 in 10 years.

    Thus, by dollar cost averaging, rebalancing and diversifying, you're ahead of the game in the "lost decade" when the overall stock market declined.

    Now imagine how much better you'd do if you added an emerging markets index fund and gold to your portfolio. That's exactly what Alex does in his Gone Fishin' Portfolio.

    Good trading - AEIOU,

    Mark Skousen

    Disclosure: No Position
    Jul 29 4:38 PM | Link | Comment!
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