Welcome to my blog where I discuss money, investing, politics, and anything else import in the world. I find it surprising that most people in their 30s have very little knowledge or interest in these areas. Of course everyone is interested in money, but very few take the time or have the discipline to properly save and invest it for the future or short term. For those who at least have the interest, I'll write about my experiences and methods of investing, and hopefully give you a head start in investing.

Saturday, April 26, 2008

Bob Brinker Calls Bottom, Bullish

Bob Brinker, famous Marketimer newsletter author and radio host, is going on the record with calling the market bottom on March 10, 2008. He is bullish that, while we may be in a small recession and have had a nice little correction, we will seen new highs in early 2009. There is likely to continue to be high volatility in 2008, but a general postive trend. I find this interesting that he would be so bold to call this. I cannot pretend to be able to agree or disagree with his prediction, but I do agree that staying invested in a diversified portfolio that includes equities (100% of long term money in my case), and continuing to dollar cost average into index funds is a sound strategy for now. Trying to time the market is difficult, if not impossible. It may have been easy to get out on the way down (although I am sure very few got the top correct), but deciding when to get back in with all this volatility is near impossible. There has been great buying opportunities in 2008 and, if taken advantage of, will pay off nicely has the trend begins to climb back up.

Tuesday, April 15, 2008

Death to Income Tax?

To take from one, because it is thought his own industry and that of his father has acquired too much, in order to spare to others who (or whose fathers) have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, "to guarantee to everyone a free exercise of his industry and the fruits acquired by it. -Thomas Jefferson

Those are the words of Thomas Jefferson on the issue of income taxes. Something to think about now that most of us have filed our taxes for 2007. Our founding fathers and, in fact, our Constitution did not allow for the collection of income taxes. The Government was funded by excise taxes, tariffs on imports, and donations from the states. The states collected primarily property, flat taxes, or import taxes. The federal Government started using income taxes on and off through 1895 to fund wars. In 1895, the Supreme Court declared the income tax unconstitutional. It took an amendment in 1913 (the 16th) to the Constitution to firmly establish the income tax as a permanent fixture in the tax code.

The income tax rate has fluctuated throughout the years, reaching as high as 91% for the top bracket in 1964. After the recent Bush tax cuts, rates are currently more moderate than those times, but still higher than the Reagan years. Now, the rate looks to be in danger of again increasing, if a Democrat wins the Presidential election.

Many have called for elimination of the income tax as they are fed up with increases in spending and increases in other tax rates. The Social Security tax cap continues to go up every year (and will be eliminated if Obama has any say about it), state taxes are increasing, and basic necessities like food and fuel are seeing high inflation. Ron Paul has been the Internet cheer leader for calling for the elimination of income tax, and although has a strong cult following, could not mount any significant momentum in the Republican primaries. Still many call the income tax system unconstitutional (which it really isn't). Flat tax and "fair tax" supporters also have been vocal, but both plans result in lower taxes for the upper income brackets, and do not lower the already low middle class rates.

Therefore, the populists tactics of the candidates prevail with battle cries to help the middle class and tax the rich. As do promises of more Government programs to support and help the country, whether it be for universal health care or money for college. There will be no relief or reduction of taxes without large cuts in programs, adjustments to social security, and reduction in Government. But when was the last time a candidate won any office by promising to do less than his/her predecessor?

Thursday, April 3, 2008

Moving on up!: Great time for a new house

Despite the subprime problems and real estate recession, or actually because of it, this is a great time to be looking at real estate - whether you want to upgrade or downgrade your house or invest in REITs. I've been dollar cost averaging into real estate mutual funds for a while now and, while it certainly lost money last year, this is a great time to buy at a dip. It may continue to be very volatile and even lose more money this year, but since stocks are forward looking, REITs may be poised to start recovering. However, it is even a better time to make a move with your personal residence.

This is something that I assumed I would be saving for a couple more years. But I recently came to the realization that I might as well look at purchasing now. I do have considerable equity in my current townhouse and I do have a decent amount saved for a downpayment. Moreover, it's a great time to buy or upgrade because it's a buyer's market and interest rates are low for those with really good credit. Usually low interest rates do not coincide with low house pirces and instead push prices higher. I could continue to save a few thousand each month and then in a couple of years I would have an even bigger downpayment, as my equity would also have grown. However, the other alternative is to buy cheap now and instead of saving that $1000 each month, put that directly into the house in the form of a higher mortgage payment. To put it in perspective, I am looking to go from approximately $350k to $450 - $550k house. At the same time I am looking at some slightly cheaper neighborhoods that get me more for my money. Since there is such a good choice of homes on the market, I am excited about what bargains can be found. You can really afford to make many low ball bids and get a good value in this market.

On the flips side, most homeowners are just looking at how much less their home is now worth. That doesn't bother me, as I have been in my current home almost 7 years and still have made considerable gains. I would much rather be trying to sell now at a discount and pickup a new house at an even better discount. It bothered me more when we had outrageous home prices the last couple of years.

So this may be a great time to upgrade if you
  • live in a desirable area
  • are willing to price your house at a discount that reflects current market conditions
  • have great credit to qualify for a low rate
  • have 20% of the purchase price for a downpayment

Having found some great properties in my area that would double my living space, I am very motivated to list my house. All I have to do is some minor repairs and touchups to get started. I'll keep you updated.

Wednesday, April 2, 2008

We're all paid what we're worth

I don't see, on average, how anyone is underpaid or overpaid in a free market, with the exception of those making minimum wage (who could be overpaid). In a free market professions are paid what they are worth to the employer and what the employee is willing to work for. Basic supply and demand. If it is really hard to find qualified people for a particular job, then the employer has to raise the wage until it becomes attractive for the employee. On an individual basis, it is true someone could be a bad value and normally things would self-correct and they are either fired or receive smaller raises. Unfortunately, if you throw in unions and tenure, that breaks the normal free market, and prevents individuals from being correctly compensated (whether more or less) according to their worth. However, professions on the whole are still governed by supply and demand.

That is why you see athletes and actors with large salaries. They a) make a lot of money for their employer and b) good ones are in very low supply. However, something like education is not a money making profession, but its value is set by what the tax payers are willing to pay for the service. Since there is no shortage of teachers who can do the job (compared to athletes who can throw 95 MPH fastballs) that wage can be held much lower. So whatever the current compensation for a profession, it has been set by the free market. Thus I find it hard to accept frequent comments about how certain profession are under or overpaid.