A Look at the 2009 Federal Income Tax Brackets
By JLP | January 9, 2009
Here’s a quick look at the 2009 Federal Income Tax Brackets along with a comparison to 2008. Not a lot of changes.
The standard deduction will increase to $11,400 from $10,900 for joint filers ($5,700 from $5,450 for single filers). The personal exemption for 2009 is $3,650* but is phased out at higher income levels.
The Social Security wage base moved up to $106,800 from $102,000—meaning, any income over $106,800 is not taxed for Social Security. It also means that the maximum a person will pay into Social Security is now $6,622.
*According to the PricewaterhouseCoopers 2009 Guide to Tax and Financial Planning
Topics: Tax Planning, Taxes | 2 Comments »
I’m Going to Read Ayn Rand’s “Atlas Shrugged” and You Should Too!
By JLP | January 9, 2009
I have owned a copy of Ayn Rand’s Atlas Shrugged
Anyway, after reading Stephen Moore’s column titled ‘Atlas Shrugged’: From Fiction to Fact in 52 Years in today’s Wall Street Journal, I have decided to get my copy down off my book case, blow the dust off, and read it.
Should you read it? Read these quotes from Mr. Moore’s column and decide for yourself:
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
In the book, these relentless wealth redistributionists and their programs are disparaged as “the looters and their laws.” Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the “Anti-Greed Act” to redistribute income (sounds like Charlie Rangel’s promises soak-the-rich tax bill) and the “Equalization of Opportunity Act” to prevent people from starting more than one business (to give other people a chance). My personal favorite, the “Anti Dog-Eat-Dog Act,” aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn’t Hank Paulson think of that?
……… The current economic strategy is right out of “Atlas Shrugged”: The more incompetent you are in business, the more handouts the politicians will bestow on you. That’s the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies — while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to “calm the markets,” another trillion of national wealth is subsequently lost. Yet, as “Atlas” grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate “windfalls.”
Sounds pretty interesting, doesn’t it?
Would AFM readers be interested in reading along with me? Perhaps have a sort of book club discussion as we read through the book? I’m going to read the book regardless, but if you are interested in a discussion, leave a comment and let me know. If you need to purchase a copy of the book, there are several to choose from at Amazon.com
Regardless, I’ll let you know what I think of the book as I read it. It should be interesting.
* Affiliate Link
Topics: Books, Miscellaneous | 14 Comments »
Friday’s Food for Thought - The Power of a Smile
By JLP | January 9, 2009
I meant to post this a long time ago but am just now getting around to it. Back when I was reading Brent Kessel’s book, It’s Not About the Money
*, I came across this story on page 226 about the power of a smile:
There is a lovely fable about a man standing on the roadside feeling dejected. A woman walking down the street feels empathy and smiles at him. The man, heartened by the smile, decides to write a letter to a long-lost friend. The friend is so touched to receive the letter that he gives ten dollars to a homeless beggar on the street. The beggar later that day finds a stray puppy shivering in an alleyway, and he uses the money to buy food for the dog and keeps it warm by his fire. The dog follows the beggar, and that night they stop and ask a family if they can spend the night on the porch because it is going to rain. The family agrees. During the night, they are all awakened by the incessant barking of the puppy. The discover that the house is on fire—right near the child’s bedroom. They are able to save the child, who grows up to become a famous medical researcher and discovers the treatment for malaria, saving millions of lives. And it all started with a simple smile.
Pretty cool story, isn’t it? A bit far-fetched maybe, but still a neat story.
* Affiliate Link
Topics: Miscellaneous | 5 Comments »
John Bogle’s Six Lessons for Investors
By JLP | January 8, 2009
John Bogle had an excellent opinion piece in today’s Wall Street Journal titled Six Lessons for Investors. His lessons (along with my commentary):
1. Beware of market forecasts, even by experts. - His point being that forecasts are nearly always optimistic and although sometimes they may be right, they are more often wrong.
2. Never underrate the importance of asset allocation.
3. Mutual funds with superior performance records often falter. - The S&P 500 was down 37% in 2008 while Bill Miller’s Value Trust was down 55%—and that was the second year in a row his fund had underperformed the S&P 500 after fifteen straight years of beating the average.
4. Owning the market remains the strategy of choice. - If you own the market, you don’t have to worry as much about problems with one particular company. Yes, if the economy tanks, you’re still going to lose money.
5. Look before you leap into alternative asset classes. - It hurts to be a bandwagon investor!
6. Beware of financial innovation. - Lumping together crappy mortgages and selling them off as “safe” securities was a financial innovation—a really stupid one!
Read Mr. Bogle’s piece here.
Of course the question is: will we learn from these lessons?
Related: Jonathan Clements on the Credit Crisis and Current Economy
Topics: Index Funds, Investing | 2 Comments »
STICK TO YOUR GUNS, PEOPLE!
By JLP | January 8, 2009
From the front page in today’s Wall Street Journal comes, Big Slide in 401(k)s Spurs Calls for Change. Here’s a quotes (WARNING: some of this might make you mad):
The stock-market rout has ignited a crisis of confidence for millions of Americans who manage their own retirement savings through 401(k) plans.
After watching her account drop 44% last year, Kristine Gardner, a 35-year-old information-technology project manager in Longview, Wash., feels no sense of security. “There’s just no guarantee that when you’re ready to retire you’re going to have the money,” she says. “You either put it in a money market which pays 1%, which isn’t enough to retire, or you expose yourself to huge market risk and you can lose half your retirement in one year.”
First off: SHE’S 35-YEARS OLD! Why is a 35-year old worried about retirement? People need to understand that the market goes up and DOWN! Simple concept but it is very hard for people to comprehend.
Unfortunately, this woman’s example is leading our idiots in Washington to propose changes (emphasis mine):
Congress has begun looking at ways to overhaul the 401(k) system. At hearings in October, the House Education and Labor Committee heard from a variety of witnesses. Some proposed setting up “universal” retirement accounts, which would cover all workers. One such plan called for establishing accounts that would receive annual contributions from the federal government, and would offer a guaranteed, but relatively low, rate of return. Another proposed automatically investing contributions in an index fund that holds stocks and bonds, with the mix getting more conservative as workers approach retirement. Other witnesses proposed less drastic changes, such as providing better education.
I don’t know about you but I really do not like the first two ideas. The word “universal” scares the living daylights out of me and I can’t imagine the government doing a better job at managing people’s money.
As far as that “guarantee” goes…guarantees come with a price. Let’s look at the math.
Let’s look at two hypothetical examples. The first one is a traditional 401(k) plan in which the participant contributes $10,000 per year for 30 years and gets the LONG-TERM average rate of return of 10%. The other is a guaranteed plan, also with annual contributions of $10,000 for 30 years and with a 5% “guaranteed” rate of return.
Now, say the market crashes and the Traditional 401(k) account’s value drops 40%, while the “guaranteed” account remains unchanged (this would be highly unlikely). Even with a 40% loss, the Traditional 401(k)’s balance after the crash is still $322,000 HIGHER than the guaranteed account. And, that’s assuming that the guaranteed account didn’t drop in value.
Not only that, but people who are at retirement age STILL HAVE A LONG-TERM HORIZON! If you’re planning on being retired for 30+ years, you are a long-term investor. Therefore, you should be investing as such. So what if your account value is down. Just live on a smaller income while your account value builds back up. It most likely isn’t the end of the world.
So, I’m going to say that it’s people’s lack of self-discipline, saving money, and poor choices that are the real cause of their problems and NOT the market’s performance. For example:
Peg Kelley, a 58-year-old small-business consultant in Watertown, Mass., didn’t contribute anything to her 401(k) last year. Instead, she’s been focused on paying down credit-card debt and building up an emergency fund in case the bad economic times turn worse. She’s also still paying off an $8,000 loan she took from her 401(k) plan four years ago to buy a new car.
Afraid of reliving the dot-com market meltdown, which knocked $100,000 off her retirement savings, she moved her entire 401(k) from diversified stock and bond holdings into cash-like investments early last year.
“I’m not going to get rich on my 401(k),” she says, “but also don’t want to get poor because of it.” She had hoped to retire early, but now she figures she won’t quit work before age 65.
She borrowed $8,000 from her 401(k) to BUY A NEW CAR!!!!!!!!
I’m stunned…
Topics: 401(k), Investing, Retirement Planning | 11 Comments »
Jonathan Clements on the Credit Crisis and Current Economy
By JLP | January 8, 2009
In early December I received an email from an AFM reader. This is what he said:
Dear JLP,
I have wondered for some time now whether Clements, who I consider the most calm and reassuring voice around, could be persuaded to comment in public about our current economy. You mentioned recently he had sent you some survey or such. Am I missing something he has recently written? I’d love that comfort of someone *still* telling me everything he used to write about in WSJ is still true. I’m sure it is, but I’m human and like to hear the obvious (or un-obvious?) repeated occasionally.
Thanks very much,
BK
Brier, WA
I forwarded BK’s email to Jonathan. It took him awhile to get back with me because he had to first check with his employer to make sure it was okay to make a public comment. Anyway, this afternoon I did get a response from Jonathan and I’m happy to pass it along to my AFM readers. Here ’tis word-for-word:
Jeff,
Hope all’s well and that you enjoyed the holidays. You asked for my thoughts on the markets. Sorry to be so slow to get back to you. As you know, I left The Wall Street Journal last year and now work as Director of Financial Guidance at myFi (www.myfi.com), a division of Citigroup Global Markets, Inc. Still, these are my thoughts—not necessarily those of Citi or the other folks who work here.
Over the years, readers have told me they think my investment philosophy is pretty conservative, presumably because I advocate keeping costs low, trading infrequently and diversifying as broadly as possible. Yet, in truth, I believe in taking risk—but taking it prudently. Over the long haul, this prudent risk-taking should be rewarded.
But it certainly wasn’t rewarded in 2008. There was no place to hide in the stock market, traditional safe havens like gold stocks and commodities got crushed and even supposedly safe investments—such as municipals and high-quality corporates—got roughed up.
Thanks to all that carnage, I’m as enthused about my portfolio as I’ve ever been, for three reasons. First, the financial terror today surpasses anything I can recall, including the howls of anguish in October 1987 and October 2002. It may be a foolish knee-jerk reaction but, with so many convinced the world is about to end, I feel duty-bound to point out that the sun keeps rising. The bottom line: If you’re a contrarian, you’ve got to love this market.
Second, valuations appear attractive. It’s tough to get a handle on price-earnings multiples, because the slowing economy is wreaking havoc with corporate profits, so consider dividends instead. Today, the Standard & Poor’s 500-stock index is yielding more than 3%. The last time yields were this high was in the early 1990s. In fact, the S&P 500-stock index is now yielding more than 30-year Treasurys, which I find astonishing.
Third, optimism is, I believe, the only rational choice. If the economy recovers, stocks should fare well. What if, instead, we’re headed for economic apocalypse? In that scenario, even conservative investments may fail, which means cautious investors could suffer along with those who are more aggressive. In other words, the upside belongs to stock investors and the downside may belong to everyone, so wagering on optimism would seem to be the more logical choice.
Best,
Jonathan Clements
I sure do miss Jonathan’s weekly columns in the Wall Street Journal! I bet you guys do too!
Thanks, Jonathan, for taking the time to share your thoughts.
Related
An Interview with Jonathan Clements (Part 1 and Part 2).
Topics: Investing, Jonathan Clements | 3 Comments »
To Buy or Not To Buy…What’s Your Advice for This AFM Reader?
By JLP | January 7, 2009
I received the following email the other day from an AFM reader (summarized from several emails):
JLP,
Greetings! Yours is an awesome website, and it has proved to be very helpful ministry to me as of late. I had a quick question for you.
My wife and I are in our 20’s. We have no kids, but I have recently curiously contemplated maybe buying a new, bigger, more expensive home in order to take advantage of the current real estate situation. The house is in the best school district in the state, and nicely situated close enough to some nice restaurants and shops, etc.
In 2006, when the neighborhood broke ground (it’s in the Birmingham, Alabama area), the houses were listed for pre-sale at $689,000 or so. I know for a fact that one of the residents in that neighborhood with a similar house to the one that I want paid taxes on $707,000 last time around. This particular house has been listed for 13 months, with the price slowly falling. The home currently says $569,000. I asked the sales agent / realtor about her coming down and she told me that they are very negotiable, of course. I can get in the low 500’s, I’m pretty sure. It is a very impressive home.
The down payment of $450,000 is nearly all of my net worth. It is a large inheritance, and it will cover about 80% of the purchase price of the home. Besides that, I would have my cars, possessions and a $15 or $20 thousand savings portfolio. I would, however, be debt free. So, I guess a major part of my question is, is a luxury home a good investment vehicle in these troubled times? I’d look to sell in 10 or 15 years, hopefully making a good bit of money on the house.
I do not have a retirement account or anything along those lines. My “career” will officially start when I finish law school and pass the bar, one year from now.
My question: Is it time to move, or wait for the market to drop even more, or stay put? If I don’t buy this house, the money will probably just be sitting in a CD of some sort.
All the best,
-SM
Wow! Lots of things to think about. Unlike lots of people, I look at a house as an investment—afterall, it IS an asset. So, I would look at this from an investing point of view. You have to decide for yourself whether or not you want to allocate your entire net worth (at least right now it would be your entire net worth) to one asset. Lack of diversification is something to think about.
It could be years before housing prices start to recover so I wouldn’t plan on any more than a 3% to 3.5% appreciation rate on the house over the next five to ten years. Based on that, you could expect the house to be worth somewhere in the neighborhood of $700,000 - $740,000 in ten years. Keep in mind that there are no guarantees that housing prices will move up. If things don’t turn around in this country soon, we could be facing a long-term recession. That would not help housing prices.
Personally, I don’t think the worst is over for housing prices. There are more foreclosures looming out there and they are only going to put downward pressure on housing prices. Sure, some areas will be hit harder than others but how bad it will get is anybody’s guess.
In addition to the purchase price, you’ll also have to pay more property taxes and the upkeep on a larger home will naturally be higher. Will you be able to afford those expenses? I know in my town, a $500,000 house probably has a $12,000 per year tax bill.
If it were my money, I think I would hold off on buying the house. I would keep an eye on housing prices and if you think they are turning around, you could jump then. You have one huge advantage over most people in that you have a hunk of cash sitting around waiting to be used. Other people don’t have that luxury.
Since you have plans for using the money for the purchase of a house, I would keep it fairly liquid. Shop around for CD rates but be careful.
That’s my opinion. You can take it for what it’s worth.
Now I’d like to open it up to AFM readers and see what they think.
Topics: Asset Allocation, Housing Market | 19 Comments »
Announcing the Winner of the “People Are Idiots” Giveaway
By JLP | January 7, 2009
It pleases me that the giveaways on AFM are getting more popular. The latest giveaway attracted 138 entries, which is most excellent.
The winner of the “People Are Idiots” giveaway was commenter #117, Jim. Congrats to Jim!
While I’m at it, I’ll go ahead and announce the other three winners of the 2009 Guide to Tax and Financial Plannning giveaway. I had originally planned for it to be a five day giveaway but got to busy and fell behind. So, I decided to randomly-select three winners from Day 3’s giveaway. The winning commenter #s were:
4 - Manoj
26 - JW
34 - Thomas
Congratulations to all the winners.
There will be lots more giveaways to come!
Topics: Books | 2 Comments »
Ten For Tuesday (January 6, 2009)
By JLP | January 6, 2009
1. First off, check out this resource I discovered a couple of days ago. It’s called NewMogul.com. Basically, it is a reader-driven business news aggregator. It’s nicely-laid out and best of all…it’s SIMPLE! Hopefully it won’t be taken over by self-promoters!
2. NCN lists 20 Things That Rock About Being Debt Free. - Bottom Line: you can afford to do stuff!
3. Charles Kirk of the KirkReport details his plans for 2009. - His portfolio was UP 11% last year.
4. Speaking of plans, here’s Digerati Life’s .
5. Gather Little by Little hosted the 92nd Edition of the Carnival of Money Stories.
6. Lazyman has some tips on how to have a successful 2009.
7. Tricia wrote about credit card offers on college campuses. She said, “I have come to realize that whenever you get a credit card through another avenue than the credit card company itself, someone is making money from selling that card to you. The same rings true for web sites and blogs that have links to credit cards.” I have always had a problem with blogs selling credit cards because none of them (at least to my knowledge) ever let their readers know that they are making money from the links. In my opinion, it’s not enough to “assume” that readers know this.
8. Social Security: the Biggest Ponzi Scheme on Earth.
9. 2009 could be better than you think.
10. From Larry Winget’s blog: Are People Idiots? - the end of his post details how you can get a free book this week.
That’s it for this week. Enjoy.
BTW - Do you like Ten For Tuesday? Do you read them or am I just wasting my time? Do you like the mixture of blog posts and traditional articles or would you prefer one over the other? Please let me know by leaving a comment below.
Also, if you’re a blogger and have a blog post you would like me to consider for inclusion in a Ten For Tuesday, send me an email (JLP - at - AllFinancialMatters.com) and I’ll see about including it (no promises).
Topics: Miscellaneous, Weekly Roundup | 10 Comments »
AFM is Experiencing Technical Difficulties
By JLP | January 6, 2009
I’m having commenting issues this morning. If you have problems leaving a comment that’s why. I have a work order in with my host. Hopefully we’ll get this fixed soon. Stay tuned…
Topics: Blogging | 3 Comments »