The editors of Working Money, The Investors' Magazine,invite readers to submit their thoughts and opinions on subjects relating to investing and this magazine. This column is our means of communication with our readers. Is there something you would like to know more about? Tell us about it.
Dude, where's my 10% yield?
I am constantly amazed at the low-level writing in Working Money. First I find some ridiculous definitions in the glossary, and now Bruce Faber is going to get everyone 10% on their Ira money. He could get billions if he knew how to do that!
Robert Ihnot, via e-mail
Billions, eh? I could go for that! Unfortunately, such is not the case. I would suggest that Robert Ihnot take a moment or two and read the article starting on page 74 of the June 2001 of Working Money. Or just click here. Look at the box "Average Annual Total Returns as of 03/31/2001," paying particular attention to the area titled "Since Inception." While I appreciate Mr. Ihnot's perception, the reality is that the market has consistently returned, in the long run, something around, more often just over, 10%. Will that continue? I don't know. However, one of the best glimpses of the future has always been through the window of the past. Bruce Faber
A tale of two Iras
I do not understand the table you published in the last Working Money. How do you know the taxes due each year on non-Ira investments? If you do not sell, you will not pay everything in the next 20 years. On the Roth Ira, the $2440 -> $137460 -> tax of $24824 -> left $112,635 and not $73,622. On the traditional, $171,825 > $140,514 after tax on the gains and not $90,508. The taxes due on total Ira distribution should be: (114,500-(2,000*20))*0.28=$20,874, assuming you take out everything. How come you find $32,074? The $3,000 annually gives you $2,160 to invest annually, so it is $123,714 after 20 years before tax minus $22,544 of tax on the capital gains at 28%. So you have left $101,170 and not $90,508. Same for the Roth: $1,756 annually -> $100,574 minus tax of $18,327 -> $82,246. Could you please explain it to me?
Patrick C. Bourbon, via e-mail
Let's see if this clears up any misunderstanding. The table compares two, 391/2-year-old investors in the same 28% tax bracket, each with $5,000 available to invest each year. The first investor uses a tax-deferred Ira. The second investor uses a Roth Ira. Both investors are investing $2,000 in Iras and we have allowed for a 10% annualized return after 20 years.
The top half of the table shows that because contributions to Roth Iras are taxed, the Roth investor has less of his $5,000 to invest elsewhere compared with the tax-deferred Ira investor.
Because the regular Ira is tax-deferred (as opposed to tax-exempt), the amount paid in distributions cannot be subtracted from the value of the Ira when calculating the tax due upon distribution. This is shown in the bottom half of the table. The tax-deferred Ira investor must cough up $32,074 of his $114,550 vested Ira in taxes. At the same time, the Roth investor, who has been paying $560 in taxes on every $2,000 contributed, pays no tax on his vested Ira, which is also $114,550. The point here is to show how all other things being equal 20 years of paying taxes on $2,000 is better than paying taxes on $114,550.
Even though the tax-deferred Ira investor realized larger gains in the nontax-deferred portion of his investment compared to the Roth investor (remember the tax-deferred Ira investor had about $400 more each year to invest in nontax-deferred, non-Ira products), the Roth Ira investor still came out ahead in terms of total money available for retirement. Hope this helps clear things up. David Penn
Kudos on your recent Working Money article. I confess I am a regular peruser of your sister publication, Technical Analysis of Stocks & Commodities, but was quite heartened to find your "biotech to the future" piece in the June 2001 Working Money. Biotech investing is not akin to the tech revolution, because in biotech, the revolution does not exist. Instead, we find the biotech evolution. In this age of grand illusion and bear market confusion, I suspect the average investor will blindly follow the lead of the brokerage analyst and thus, repeat the costly fortunes lost. The biotech investor or potential speculator who reads your fine publication might do well to remember this adage: The road to new wealth is paved from test tubes, patents, and pipeline, thus creating new health! A most enjoyable and thoughtful piece.
Frank Linet, Bocabioventure Investments, via e-mail
Your article in Working Money showed me that in the world of mobile trading, I'm seriously behind. I currently trade an Ameritrade account via the Internet and would like to know more about mobile trading via laptops. Are laptops equipped with wireless link capability same as Palms? It seems the downside of mobile trading per your article is small screen size and awkward keyboards, a problem that is eliminated by laptops. Would you please let me know where I can get more information on laptop wireless trading?
Ed Mickus, via e-mail
Actually, I don't equate wireless trading to trading using a laptop. In order to trade using a laptop, you need a wireless network connection for your laptop. To get this, there are a lot of options available. Several companies such as Ricochet offer cellular modems, so you can dial up to an Internet service provider via a cell phone connection. You can also buy wireless network interface cards to plug into your laptop's Pcmcia slot. The disadvantage with these is that they only work while you're in the vicinity of a supported wireless network usually, these are only deployed within buildings in large corporations, but there is some indication that airports and Starbuck's shops are going to start deploying wireless networks in their locations as well. Hope this answers your question. Editor
Getting started with investing
My daughter has some money that I would like to invest for her. It's not a large amount, but enough if invested right to help her with college in the next three to four years. However, I don't have a clue as to how to get started! I would appreciate any assistance or advice that you could give me.
Tina Hatin, via e-mail
Getting started is often the single biggest stumbling block. Because your daughter will be needing the money in only a few years, the overall market may be too volatile to be your best investment. However, opening an account with an e-bank and buying a CD could get her a fair return, stay ahead of inflation, and be backed by the Fdic. Here's a good place to learn more: http://www.free-online-banking-internet-checking.com/. In addition, here are a few sites that will help you find the best rates on savings and CDs: http://www.banxquote.com/ and http://www.bankrate.com. There may be a charge for specific information from this site, but it is minimal compared to how much more you can gain by getting the highest return. If you want to get some basic ideas on getting started in investing, here is one of many such sites on the Internet http://biz.yahoo.com/edu/ed_begin.html (in addition to reading Working Money, of course!). If you want to put your money in the market, first read "What's Realistic & What's Not" on page 74 of the June 2001 Working Money (Working-Money.com). Bruce Faber
Per-share brokerage fees
I have been a reader of both S&C and Working Money for a while now. I have to say that your informative teachings have me ready to get into the market. Unfortunately, with a limited amount of capital, any per-trade brokerage fees really will hamper my efforts. Could you please point me to a per-share brokerage, or a brokerage with cheaper than normal fees? Any help on this one can make a world of difference in my trading future.
Chuck Turner, via e-mail
You are in luck. The Internet has spawned real competition and the commission rates have gone, literally, to nothing. At least two, and probably more, Internet brokerages offer free market orders: http://www.elephantx.com/ and http://www.freetrade.com/. There are also several sites that offer comparisons of many brokerage services. This one has links to several different comparisons: http://www.cyberinvest.com/guides/brokersurveys.html. Some of these survey results may be slightly biased, some are pretty fair. Most are probably a little out of date. On the ones I checked, I did not see either FreeTrade.com or elephantx.com. Bruce Faber
Stop and sell orders
This question is directed to R.M. Sidewitz about his article "Dodge Your Own Market Disaster." Is there a way to put in a stop order and sell order at the same time? I wanted to stop at 9.00 on a stock but sell at 12.00. I bought at 10.00.
Mike Buffone, via e-mail
Let me begin by applauding your understanding that we can, in fact, have several stop orders working at the same time for a single security. The one below the market (at 9) is called a sell stop and it, in essence, serves as a breaking mechanism in the event that the position doesn't go your way. The order above the market (at 12) would be entered as a market if touched (Mit) order and serves to protect your profits. Your broker should place the two as an Oco (one cancels the other). In this fashion, you could never be hurt if the market moves quickly in one direction and then the other. My best wishes for your continued success. R.M. Sidewitz
I subscribe to Working Money and I would like to know the parameters for setting up stochastics on my computer. I just read your article on moving average convergence/divergence (Macd) this month, and it was excellent. Could you write an article covering stochastics, please? Thanks very much for an excellent magazine.
Thomas Reed, via e-mail
Long is defined in the July/August issue as "Establishing ownership of the responsibilities of a buyer of a tradable; holding securities in anticipation of a price increase in that security." Fine! But if the person does not know what it is to own the stock before reading that, I doubt he learned anything! A totally queerish approach to educating the layman is the definition of beta, part A:"A regression of the estimated coefficient that belongs to a particular variable." This is so completely pointless that I doubt anyone at all could offer an explanation of that. What seems to have happened is that things have been copied from one place to another without going through any gray matter in between. Certainly that approach is of no help to the layman.
Robert Ihnot, via e-mail
Point and figure charts
I am enjoying my subscription to Working Money. I am fascinated with the charting concepts of technical analysis. I have recently heard about analyzing supply and demand by using point and figure charts. Would you write an article that explains this procedure?
William M. Moore, via e-mail
Working Money contributor Morley Hudson, whose articles for us included "Who Gets Aunt Hattie's Lamp?" and "Shake Uncle Sam Off Your Coffin," among others, passed away in June at the age of 84. Morley's life was an extraordinary one; he played football for the Green Bay Packers, he served in the US Army during World War II, and afterward, he worked as a mechanical engineer. His civic activities were equally extraordinary; among others, he served on a number of commissions involving advocacy for the mentally retarded, and even played Santa Claus in 1977 at the White House Christmas party for handicapped children. He was a staunch Republican and was involved in the development of the Republican party in Louisiana, which had been a one-party state for a century. He also served in the state House of Representatives and was House Minority Leader until 1968.
One more thing. We're told that he was a great dancer.
He will be missed. Editor
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