If you think this is going to be a post about Mitt Romney you are wrong. I am actually writing about an article on economist.com detailing the relatively healthy economy in Utah, and how that is in large part due to the Mormon way of thinking. I encourage you to read it, but if not I'll at least share with you the last paragraph that I find very amusing.
"Mormons do not come to work nursing hangovers, and they are inclined to stay put in the promised land rather than pursue better-paying jobs elsewhere. Matthew Donthnier, who is hiring for a new Procter & Gamble plant, has only one complaint about the local workforce: it can be a little difficult to persuade people to toil on Sundays."
The idea of working in the "Promised Land" when one could make so much more money elsewhere is strange indeed. What kind of crazy person would feel that way?
Wednesday, October 29, 2008
Tuesday, October 28, 2008
Vote for the man or the party?
The conflict continues. I've already written about why I like Obama's plans over McCain's but I still struggle.
Something needs to be done about healthcare coverage and while McCain will give help for people to buy their own insurance I do not think many in America will buy health insurance unless forced to do so. I'm still in the Obama camp on that one.
History shows me that the Democratic policy of raising taxes is not a very good one. Hoover's wonderful plan to increase the top income tax rate from 25% to 63% in 1932 sure proved to be a great solution to the depression that started 3 years earlier. Massive inflation in the 70's only came to a halt when Reagan put a stop to many of the Carter policies.
So do I vote for the specific policy I believe is better or do I go with the party that I believe has done a better job with the economy historically? The Bush administration has not done too well by me with the economy. The devaluation of the dollar during the past 8 years is not what I call good business. I don't know that a McCain administration will do any better.
In the end maybe a vote for Obama is a win/win situation. If his plans work then things are great. If they don't maybe Romney will have a better shot in 2012.
Of course there are other topics of concern to me and my views are much more inline with the democratic party when it comes to the education of my children (I throw this in here in hopes that my mother won't disown me if I vote for a democrat in a presidential election).
What to do?
Something needs to be done about healthcare coverage and while McCain will give help for people to buy their own insurance I do not think many in America will buy health insurance unless forced to do so. I'm still in the Obama camp on that one.
History shows me that the Democratic policy of raising taxes is not a very good one. Hoover's wonderful plan to increase the top income tax rate from 25% to 63% in 1932 sure proved to be a great solution to the depression that started 3 years earlier. Massive inflation in the 70's only came to a halt when Reagan put a stop to many of the Carter policies.
So do I vote for the specific policy I believe is better or do I go with the party that I believe has done a better job with the economy historically? The Bush administration has not done too well by me with the economy. The devaluation of the dollar during the past 8 years is not what I call good business. I don't know that a McCain administration will do any better.
In the end maybe a vote for Obama is a win/win situation. If his plans work then things are great. If they don't maybe Romney will have a better shot in 2012.
Of course there are other topics of concern to me and my views are much more inline with the democratic party when it comes to the education of my children (I throw this in here in hopes that my mother won't disown me if I vote for a democrat in a presidential election).
What to do?
Sunday, October 26, 2008
Who deserves my vote?
Never have I struggled with a presidential election like I am this year. I'm going to put aside my moral disagreements with the democratic party (sorry but abortion rights doesn't really play out in presidential politics) and discuss the two things that have the most relevance to me in this election namely; taxes and healthcare (didn't see that one coming did you?).
Healthcare:
I do not like Obama's healthcare plan because I don't believe healthcare is a right. I don't believe it is the government's job to make sure everyone is covered by paying for their healthcare, and I don't believe that I should have to pay taxes to support an expensive government plan.
I like McCain's plan but I don't think it will work. McCain claims that by taxing healthcare dollars and giving healthcare credits to American's everybody will be able to afford health insurance. If the healthy in the country use that money for catastrophic insurance because that's really all they need then the cost of full coverage will necessarily go up because only those who need it will be paying the premiums. This is a horrible idea.
In the end I do believe it is irresponsible for anyone to go without health insurance and if the government has to step in to make sure everyone get's covered then the government needs to step in. As I don't think McCain's plan will work I have to go with Obama on this one.
Taxes/Economy:
Anyone who knows me knows that I hate Robin Hood economics. I disagree completely with any plan that increases taxes in the higher tax brackets while increasing credits for lower wage earners. I also do not like the way the current administration has given so many credits to the executives and stock owners in this country. It truly is a shame that the very richest people in the country pay a lower percentage in taxes than the middle class because of capital gains and dividend tax rates.
Obama's plan will result in an increase in taxes for those making over $250,000 while giving all kinds of credits as the income goes down. He will also repeal the current capital gains and dividend tax rates and replace them with much higher rates.
McCain will decrease taxes across the board, but moreso for the higher wage earners. McCain will keep the capital gains and dividend taxes at the low rates they currently are at. Once again I like the McCain tax plan, but just like his healthcare plan I don't see how it will work. McCain's plan will not support the other plans he proposes. Whether or not you agree with the war the one thing that is certain is that it will definitely continue under a McCain presidency and it is not cheap to do so.
If I were to propose a plan it would include more taxes for capital gains and dividends as opposed to salary taxes. I would increase taxes on luxury items such as expensive cars, luxury hotel rooms, and chartered jet flights. There are obviously many more things that fit into the luxury purchase category, but by taxing these items the democrats get to tax the higher wage earners while not punishing those who are trying to save for the future. As I've said I don't like the uneven tax code, but if a person or company can afford to travel from the airport in a limo or a helicopter they can certainly pay a premium in taxes for that luxury. Of course this would mess up the whole tax system because many of these luxury items are bought by businesses and are actually used as tax write-offs. Tell me that isn't a little bit backwards?
In the end I don't think McCain's plan is wise and while I don't agree with Obama's plan in principle I don't think it will kill the economy. On a personal level I don't plan to be making $250,000 in salary anytime in the near (or distant) future. My investing approach involves buying individual stocks for the long term (no capital gains) without worrying about a fixed income at the present time (few dividends). My only mutual funds are held in my 401k (tax deferred). Obama's plan actually puts more money back into my pocket. As much as I hate it I have to go with Obama again on this one.
I don't consider myself a dyed-in-the-wool republican, but I have always voted along party lines. Should I feel bad that I am seriously considering voting for the senator from Illinois?
Healthcare:
I do not like Obama's healthcare plan because I don't believe healthcare is a right. I don't believe it is the government's job to make sure everyone is covered by paying for their healthcare, and I don't believe that I should have to pay taxes to support an expensive government plan.
I like McCain's plan but I don't think it will work. McCain claims that by taxing healthcare dollars and giving healthcare credits to American's everybody will be able to afford health insurance. If the healthy in the country use that money for catastrophic insurance because that's really all they need then the cost of full coverage will necessarily go up because only those who need it will be paying the premiums. This is a horrible idea.
In the end I do believe it is irresponsible for anyone to go without health insurance and if the government has to step in to make sure everyone get's covered then the government needs to step in. As I don't think McCain's plan will work I have to go with Obama on this one.
Taxes/Economy:
Anyone who knows me knows that I hate Robin Hood economics. I disagree completely with any plan that increases taxes in the higher tax brackets while increasing credits for lower wage earners. I also do not like the way the current administration has given so many credits to the executives and stock owners in this country. It truly is a shame that the very richest people in the country pay a lower percentage in taxes than the middle class because of capital gains and dividend tax rates.
Obama's plan will result in an increase in taxes for those making over $250,000 while giving all kinds of credits as the income goes down. He will also repeal the current capital gains and dividend tax rates and replace them with much higher rates.
McCain will decrease taxes across the board, but moreso for the higher wage earners. McCain will keep the capital gains and dividend taxes at the low rates they currently are at. Once again I like the McCain tax plan, but just like his healthcare plan I don't see how it will work. McCain's plan will not support the other plans he proposes. Whether or not you agree with the war the one thing that is certain is that it will definitely continue under a McCain presidency and it is not cheap to do so.
If I were to propose a plan it would include more taxes for capital gains and dividends as opposed to salary taxes. I would increase taxes on luxury items such as expensive cars, luxury hotel rooms, and chartered jet flights. There are obviously many more things that fit into the luxury purchase category, but by taxing these items the democrats get to tax the higher wage earners while not punishing those who are trying to save for the future. As I've said I don't like the uneven tax code, but if a person or company can afford to travel from the airport in a limo or a helicopter they can certainly pay a premium in taxes for that luxury. Of course this would mess up the whole tax system because many of these luxury items are bought by businesses and are actually used as tax write-offs. Tell me that isn't a little bit backwards?
In the end I don't think McCain's plan is wise and while I don't agree with Obama's plan in principle I don't think it will kill the economy. On a personal level I don't plan to be making $250,000 in salary anytime in the near (or distant) future. My investing approach involves buying individual stocks for the long term (no capital gains) without worrying about a fixed income at the present time (few dividends). My only mutual funds are held in my 401k (tax deferred). Obama's plan actually puts more money back into my pocket. As much as I hate it I have to go with Obama again on this one.
I don't consider myself a dyed-in-the-wool republican, but I have always voted along party lines. Should I feel bad that I am seriously considering voting for the senator from Illinois?
Sunday, October 19, 2008
Finance 101
I'm frustrated with the presidential campaign. I don't think either candidate has an effective plan for the future. I don't believe either of them will actually be able to lower taxes as they both promise and you know how I stand on the plans anyway. I don't want to dwell on it tonight so I'm going to post about the first lesson I'm going to teach in my future finance class.
Any finance class has to have some semblance of order, but before that there has to be a bit of excitement. Finance is nothing if not exciting so my first lesson will be about the future value of an investment, more specifically, the Future Value equation.
FV = PV*(1+i)^t
Big deal right? This equation is learned in Algebra class in middle school or high school and the wow factor lasts about 15 minutes. What happens when we apply the equation to a real life scenario regarding automobile purchases?
Let's take the example of a $15000 car bought with a loan at 6.6% over 5 years. That comes to a monthly payment of $295. The resultant cost of the car is $17700. Now let's say that instead of a $15000 car we decide to buy a $10000 car resulting in a monthly payment of 195. The resultant cost of the car is $11700. $1000 savings over 5 years in interest payments big deal, but if the $100 per month is invested in a mutual fund with an average gain of 10% per year the resultant sum after 5 years is $8000. In either scenario the car is paid off in 5 years and the layout in cash is $17700.
I'm going to say that the person buying this car is 22 years old so when the car is paid off the purchaser is now 27. Let's say that the $8000 was invested in an IRA and no further additions are made to the balance following the initial 5 year layout. At age 59 the balance is just shy of $200,000. If, however, the $100 monthly payment is continued to age 59 the balance becomes a not too shaby $472,187.
Just to take it one step further let's say that Joe Plumber continues to buy a new car every five years. He continues to pay $295 in monthly payments and his cars get progressively more expensive as he is able to place some money down from the sale of the previous car. At age 62 (used for calculation purposes) Joe Plumber has a pretty nice car free and clear.
Joe's brother Nate decides to eliminate his debt and at the end of 5 years he uses the sale of his car plus the $8000 saved to buy his next car with cash. At this point he places the whole of his monthly $295 into investments. At the end of 5 years his investment balance is $22843. He then takes $15000 to buy a new car with cash, but continues the payments to his investment account. After 5 more years the balance is $35748. Increasing the price of the new car purchase by $5000 every 5 years still yields a balance of $245,000 at age 62. If the price of the new car purchase is capped at $20,000 the investment account grows to an amount of $319,000 at age 62. Finally if the car purchase is pushed to 7 years instead of 5 the amount at age 62 grows to $481,786.
So that's half a million dollars saved just by buying slightly less expensive cars with cash as opposed to buying them on credit all thanks to the future value of money.
Now we get a little crazy, but to illustrate the equation we must continue.
Next we have Joe's other brother Tyson, who decides to bike to work and borrow Joe's car when he goes out of town. He places all of his monthly $295 into investments from the beginning. At age 59 Tyson decides to buy a $300,000 Ferrari 599 and be happy with the left over 1.1 million dollars still in his account.
Tyson's wife Cheryl doesn't have quite as much discretionary income as her husband so she only has $100 per month to invest. Having been born in Omaha, Nebraska she is a fan of Warren Buffet and decides to put her money into Berkshire Hathaway giving her an annual return of 21.1% (average annual gain from 1965 to 2007). She's not interested in cars, but has her eye on a 6.5 million dollar villa on the coast so she buys it with half of her $13 million at age 59. If only she had gotten Tyson to put his money into Berkshire he could be sitting on a ferrari 599 and $39 million. Oh yeah, none of those gains are taxed until sold because Berkshire doesn't give a dividend.
Finally we have Jonny who took the $8000 from our original example and put it all in Berkshire. Jonny didn't invest another penny his whole life yet 32 years later his 21.1% interest turned that 8 grand into $6.5 million.
I'm probably going to get some calls from angry parents after this lecture, but it will still be fun.
Any finance class has to have some semblance of order, but before that there has to be a bit of excitement. Finance is nothing if not exciting so my first lesson will be about the future value of an investment, more specifically, the Future Value equation.
FV = PV*(1+i)^t
Big deal right? This equation is learned in Algebra class in middle school or high school and the wow factor lasts about 15 minutes. What happens when we apply the equation to a real life scenario regarding automobile purchases?
Let's take the example of a $15000 car bought with a loan at 6.6% over 5 years. That comes to a monthly payment of $295. The resultant cost of the car is $17700. Now let's say that instead of a $15000 car we decide to buy a $10000 car resulting in a monthly payment of 195. The resultant cost of the car is $11700. $1000 savings over 5 years in interest payments big deal, but if the $100 per month is invested in a mutual fund with an average gain of 10% per year the resultant sum after 5 years is $8000. In either scenario the car is paid off in 5 years and the layout in cash is $17700.
I'm going to say that the person buying this car is 22 years old so when the car is paid off the purchaser is now 27. Let's say that the $8000 was invested in an IRA and no further additions are made to the balance following the initial 5 year layout. At age 59 the balance is just shy of $200,000. If, however, the $100 monthly payment is continued to age 59 the balance becomes a not too shaby $472,187.
Just to take it one step further let's say that Joe Plumber continues to buy a new car every five years. He continues to pay $295 in monthly payments and his cars get progressively more expensive as he is able to place some money down from the sale of the previous car. At age 62 (used for calculation purposes) Joe Plumber has a pretty nice car free and clear.
Joe's brother Nate decides to eliminate his debt and at the end of 5 years he uses the sale of his car plus the $8000 saved to buy his next car with cash. At this point he places the whole of his monthly $295 into investments. At the end of 5 years his investment balance is $22843. He then takes $15000 to buy a new car with cash, but continues the payments to his investment account. After 5 more years the balance is $35748. Increasing the price of the new car purchase by $5000 every 5 years still yields a balance of $245,000 at age 62. If the price of the new car purchase is capped at $20,000 the investment account grows to an amount of $319,000 at age 62. Finally if the car purchase is pushed to 7 years instead of 5 the amount at age 62 grows to $481,786.
So that's half a million dollars saved just by buying slightly less expensive cars with cash as opposed to buying them on credit all thanks to the future value of money.
Now we get a little crazy, but to illustrate the equation we must continue.
Next we have Joe's other brother Tyson, who decides to bike to work and borrow Joe's car when he goes out of town. He places all of his monthly $295 into investments from the beginning. At age 59 Tyson decides to buy a $300,000 Ferrari 599 and be happy with the left over 1.1 million dollars still in his account.
Tyson's wife Cheryl doesn't have quite as much discretionary income as her husband so she only has $100 per month to invest. Having been born in Omaha, Nebraska she is a fan of Warren Buffet and decides to put her money into Berkshire Hathaway giving her an annual return of 21.1% (average annual gain from 1965 to 2007). She's not interested in cars, but has her eye on a 6.5 million dollar villa on the coast so she buys it with half of her $13 million at age 59. If only she had gotten Tyson to put his money into Berkshire he could be sitting on a ferrari 599 and $39 million. Oh yeah, none of those gains are taxed until sold because Berkshire doesn't give a dividend.
Finally we have Jonny who took the $8000 from our original example and put it all in Berkshire. Jonny didn't invest another penny his whole life yet 32 years later his 21.1% interest turned that 8 grand into $6.5 million.
I'm probably going to get some calls from angry parents after this lecture, but it will still be fun.
Friday, October 10, 2008
Optimism in Recession.
Since September 26 the Dow has lost 25%. This week the Dow dropped 17%. The S&P hasn't been this low since April 2003 and that was following the correction from the Internet bubble. Previous to that bubble we have to go back to May of 1997 to see the S&P this low. Eleven years of gains have been wiped out just like that and yet I find myself incredibly positive about the situation.
I began reading and learning about finance and the market shortly after returning from my mission in 1998. Since that time I have been of the belief that the market was overvalued. I read over and over again the statements by the bulls on wallstreet saying that the markets had changed and historical valuations no longer applied in our current market. I didn't believe it then and I don't believe it now. I thought the recovery from the internet bubble was too much too soon.
Today I feel like the market is finally properly valued. Does that mean I think we have hit the bottom, not necessarily. I do believe it is a wise time to start putting money into the market. Stocks may continue to fall, but many great companies are falling along with the rest of the market making them great buys now. I'm seeing P/E ratios under 10 for companies that have increased their earnings.
If you are worried about getting back into the market too early I would suggest investing through ING direct with a sharebuilder account. The great thing about sharebuilder accounts is that you have the option to create an investment plan that automatically buys a certain amount of your specified stocks or funds the the Tuesday of your choice (or every Tuesday should you choose to do so). The plan takes the impulsiveness out of investing, and while dollar cost averaging is not the most lucrative investment strategy it is a tried and true way of building wealth.
I began reading and learning about finance and the market shortly after returning from my mission in 1998. Since that time I have been of the belief that the market was overvalued. I read over and over again the statements by the bulls on wallstreet saying that the markets had changed and historical valuations no longer applied in our current market. I didn't believe it then and I don't believe it now. I thought the recovery from the internet bubble was too much too soon.
Today I feel like the market is finally properly valued. Does that mean I think we have hit the bottom, not necessarily. I do believe it is a wise time to start putting money into the market. Stocks may continue to fall, but many great companies are falling along with the rest of the market making them great buys now. I'm seeing P/E ratios under 10 for companies that have increased their earnings.
If you are worried about getting back into the market too early I would suggest investing through ING direct with a sharebuilder account. The great thing about sharebuilder accounts is that you have the option to create an investment plan that automatically buys a certain amount of your specified stocks or funds the the Tuesday of your choice (or every Tuesday should you choose to do so). The plan takes the impulsiveness out of investing, and while dollar cost averaging is not the most lucrative investment strategy it is a tried and true way of building wealth.
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