Thursday, July 17th, 2008
While I am convinced that some (read: very few) people in the world have the ability to time the market, you and I are not them. That is not meant to be an insult to you, but if you could successfully time the market then you certainly wouldn’t be reading this article.
The Market Moves Mysteriously
Yesterday the American stock market had one of the best days in recent memory. The returns of the major indexes were as follows:
- Nasdaq - 3.12%
- Dow - 2.52%
- S&P 500 - 2.51%
Why do I tell you this today?
You see, yesterday was a great day to be invested in the stock market. However, you would not have known it if you had been listening to the so called “experts”.
Here are some of the morning headlines from major investment news sources:
(Heresy is a dislocation of some complete and self-supporting system of belief)
Fed Worried About Rising Inflation at June Meeting - CNBC
Unemployment rise at 16-year high - Financial Times
Dollar Declines Against Yen as US Banks May Report Losses - Bloomberg
Fed Chief Gives Gloomier Outlook On US Economy - CNBC
Inflation Data Tame Stock Futures - Investors Business Daily
Recession Under Way? - Morningstar
Seeing Bad Loans, Investors Flee From Bank Shares - New York Times
Is Your Cash Safe at the Bank? - TheStreet.com
What Does This Mean?
No, I am not saying that just because I said to stay the course and keep investing in equities yesterday that I am any better at predicting the future than the authors mentioned above. Heck, for all I know the market could lose yesterday’s gains and then some in today’s session!
What I do know, however, is that being a long-term investor is a better option for me than being a short-term trader.
What I am also suggesting is that we have to develop our own investment plans that work for us and stick with the plan. We can’t be bothered by the hype in raging bull markets, nor the doom and gloom sentiment in bear markets. I know as well as you that what I propose is easier said than done, but it is for our own financial well being that we develop an investment plan that makes sense to us and stick to it. Once we start straying from what we know, we are more likely to get burned.
Remember, the above authors get paid to sell papers not to invest your money! Those headlines make them money, but you don’t have to let them lose your money.
Just think about it.
Posted in Investment News | No Comments »
Monday, March 17th, 2008
Each year I contemplate what I should do with my tax refund check from the government, and each year I go back and forth between a couple of options. It is interesting how I can talk myself out of buying almost anything.
Understanding the Tax Refund
In all reality, getting a refund on your taxes is actually the worst thing that could happen to you. I would rather have to pay the government a few hundred dollars each year than get a couple of thousand in return. To the average person this sounds crazy, but it is absolutely true.
You see, the government only returns money to you if you have already paid too much tax throughout the course of the year. In essence, you have given the government an interest free loan in the amount of your tax return! When is the last time you received an interest free loan?
Look At Taxes This Way
What if you could keep all of the money that you pay to the government in taxes for the entire year and invest it? If you were savvy enough to invest this money in a high interest savings account at ING or the like, you could actually earn interest on the government’s money all year long and then make one lump sum payment at tax time - keeping the earned interest for yourself. That sounds better doesn’t it?
What I just mentioned is exactly what the government does with your tax refund dollars. Because you paid too much in taxes over the course of the year, the government gets to invest that money (your money) and earn a return on it.
When you submit your tax return they say…oops! Here you go, this is the amount of money that you over paid in taxes - but they keep the earned interest.
What to Do
Now, I believe that we should go on paying taxes as usual through deductions from our regular pay checks because most of us are not financially astute enough to save the money for a year for the purpose of paying taxes. However, if you are consistently getting large refunds, ask your employer to withhold less from each check.
Wouldn’t you rather have the money in your savings account earning you money instead of giving the government an interest free loan until April?
Each year when I receive my tax refund, which is usually just a couple of hundred dollars no that I have adjusted the amount withheld from my pay, I contemplate what to do with it.
Part of me wants to spend it on something frivolous like a small plasma television for the basement family room or a camcorder to record family events etc. On the other hand, I think I should invest it in a speculative stock that I have been looking at on the chance that it will return 10X over.
I’m still not certain what I will do this year, so it will sit in my savings account for now.
What will you do with your tax refund?
Posted in Taxes | 1 Comment »
