Anyone else follow the stock market?

[pauln]

Yes, I don't like what I see...

The US stock market appears to
be rising in nominal terms (as measured in devaluing US dollars) and is
claimed to be "breaking records", but if you measure it in Euros, gold,
corn, or oil is is down the last 7 seven years. See the chart below for
the Dow priced in gold... You can see this for yourself by taking the
dollar value of these commodities or other curencies and doing the
math, or finding the representative charts on the net. The value of the
US dollar has lost over half it's value in the last five years, growth
in the US is down to next to nothing right now, real inflation is
running about 10% (but reported to be much lower), real unemployment is
running about 10% (but reported much lower), and the housing market is
just beginning it's crash - an additional couple of trillion
dollars are scheduled to be due from mortgage resets just this year and
the payees have already liquidated all their equity and surplus cash.
The peak for mortgage resets is coming in OCT 2007...

About those
estimates of inflation, growth, and employment - the US has changed how
these are measured a couple of times in the last 30 years in order to
get better figures for official release to the public. If we still used
the old methods of calculation or even the same methods as currently in
use in Europe the US figures would be so bad there would be a mass
panic (so don't tell anyone).

Lots of folks are getting out
of the market right now because historically the period from May to
October is a slow growth period each year. Unfortunately, with the
impacts coming about this October the market is poised for a hugh fall
back to it's real value of a Dow in the sub 10K range.

The
most dangerous time to be in the stock market is when everyone thinks
it can only go up and even the most pessimistic "bears" begin to think
so as well. We are at this point now. The Federal Reserve used to have
some influence on the US economy but now that the financial sector has
discovered how to manufacture liquidity (indebtedness) without limit
the FED is toast. They can't raise rates because of the realestate
crash and they can't lower rates because of the value of the dollar
(other countries would stop using the US dollar to buy oil and back
their currencies and cause a dollar crash crisis - actually some
countries are starting to do this already, so hang on and watch the
news carefully!). The first country to do this was Iraq, the second was
Iran... note the strong US response... Kuuat has just announced it is
going off the US dollar and China is reallocating US dollars down out
of it's balance... more will do the same.

The best anyone in the US can do right now is to get completely
out of debt, maintain your bicycle, and keep a few months of food in
the pantry. Ownership of a little physical gold would be good too as
the price will skyrocket many time over in response to the coming
financial crises. When paper assets and paper money lose value and gold
goes to $10K per oz you will be glad you bought some at $700. Just a
little will go a long way.

[Colin]

DJIA vs Gold

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Funny you should measure the DJIA against other rising commodities such as Euros, gold, corn, or oil instead weakening ones. All I care about is US dollars. I earn my returns here, in USD. Why not compare the DJIA in trade-weighted USD? Because the USD has been holding its own against most other currencies in the last several years, not just bullish commodities.

The USD index compares the USD to other major currencies (apples to oranges). The value of the USDI has lost over half its value in the last several years, but it was up for several years before that.

Growth in the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US is next to nothing? But exports and GDP are up?

Actually, some sectors of the housing market are just beginning to recover.

If mortgage payees have already liquidated all their equity and surplus cash, doesnt that mean not only lots of defaults, but also lots of mortgage fees for refinancing? Banks without weak loan portfolios are going to clean up with refinancings! It also means lots of housing dumped on the market.

A mass panic? Surely you jest. Just because the numbers are actually worse than what the government tells us does not mean the worlds largest and strongest nation and currency is going to disappear or default overnight.

Lots of baby-boomers are getting into the market right now because historically the stock market earns very respectable rates of return for long-term investors.

As if the USD reserves of a piddling country like Iraq or Iran actually has much long-term effect on the value of the USD compared to ongoing currency pair trading of economic giants EU, Britain, Japan, Germany, China, France, Italy, Spain, Canada. Korea, Taiwan, Mexico, Brazil, etc.

China is slowly re-valuing its Yuan and USD holdings. It is pegging the Yuan at 10% more to the USD, while diversifying 10% of its huge USD bond purchases. Changing 10% a year is not a cataclysm going to make.

The best anyone in the US can do right now is concede defeat? Bury our heads? Ignore opportunity! Of course it is only prudent to get completely out of high-interest, non-deductible debt, but real estate is usually the average persons BEST investment should we not invest in our own homes? Dont be foolish.

Of course we should maintain our bicycles we all need the exercise! And yes, we need keep a few weeks of food in the pantry. The damaging season approaches those of us in hurricane alley.

But panic? And run for the hills. Dont be alarmist. Avoid the stock market now and you miss out on some classic Blue Chip performance. Google is introducing new projects (while quietly withdrawing others). It is up a solid 53% since October of 2005, while the DJIAs recently surged 29%. Old-economy stocks like Boeing are up over 50% and though GM slumped, it too is up over 50%. Any of a dozen high-yield, low PE stocks would have been better to own for the next 2 years then expecting gold to continue its recent rise. Yes, during this period the trade-weighted USD index declines, but it had a nice run up to 2005 and deserves some correction. The USD is down, but not out. The trend is down; it will get weaker. Yet corrections and pull-backs also mean more upside is coming; not that the sky is falling. A country spending like crazy on territorial wars, while ignoring productivity, is not building a stronger currency.

So ownership of a little physical gold would be good. But dont expect the price to skyrocket because trillion dollar economies suddenly decide to horde and ship and store and protect the small amount of physical gold in the world instead of fast, liquid, convenient, growing and easily-traded paper assets and money. No, instead I would expect owners of a small amount of gold to enjoy a boost when:

1) gold tests the highs of last year

2) some fool organization detonates an atom bomb

Despite the recent rise in gold, new financial instruments and exchanges are a MAJOR growth industry now. Countries moving away from USD denomination and holdings are not stocking up on the yellow metal. They havent for 30 years. They wont be starting soon. Instead, they are trading and valuing their currencies in a wider basket of other, currently potentially more valuable currencies. The open interest of gold trading is not increasing significantly beyond the global growth of world economies and new currency trading. Yet, the total trading value of holdings and open interest in the currencies of other, strong, established and growing countries, in relation to the USD, is increasing. Countries doing more business with India have more reasons to hold rupees and Euros than they need to hold USD. The interest in holding USD is lowering, not in favor of physical gold, but in favor of holding gold (mostly in paper form) and other currencies.

If the WTC towers fell again today, will the G8 countries drive to a local coin dealer to load up on Buffalo nickels or would they call their global broker networks, using their available cash and margin to short some currencies?

---

http://futures.tradingcharts.com/chart/US/M

[mas]

What I would find interesting is to find a financial adviser who actually lived his talk! How many of you have one who is like a salesman for the overnight get rich quick courses? You know, the ones who tout it; but instead of actually doing it in a solvent manner, they are simply salespersons living off the commission or salary they earn as a fancy clerk pushing the concept or course?

My kingdom to follow someone who actually walks their talk in a successful manner!

Heck, what is fascinating is to go down to the courthouse here in Tarrant County and watch the tax sales where you earn a guaranteed 25% per annum return on tax deed sales (rates are set by each state). And as long as you avoid the Federal IRS liens and the EPA hazardous landfill properties (in other words, stick to residential sales), the worst you can do if the folks do not redeem the property is get the house for the taxes! It hurts so good. But since no one can do this for another on commission, do you find it funny that you have probably never heard of them? The regulars you see down there with the reserved seats are the bankers and insurance companies! You know, the same ones who do you a favor as you loan them your money for free (its called a bank account) so that they can charge you fees - or give you 'free' checks- as they invest your money at much greater guaranteed rates! You certainly don't see them investing in mutual funds! And my financial advisor's reply when asked about tax liens/deeds was to lament that they might increase my capitol gains exposure! Yeah, like making TOO much money is my problem with an mutual fund based IRA that still has not recovered its pre-crash 2000 value despite the markets doubling! Isn't it funny how so many fail to focus on making money but are obsessed with saving taxes? And don't dare ask about this in an MBA program where most programs and participants are oriented toward improving the chances of getting that next promotion to middle manager! Such lofty goals! (I made the mistake! And the result was hilarious if for nothing else than the inanity of the response of a professor whose entire career had been focused on doing little else! Wouldn't it be nice if these programs actually employed talent who had 'beaten' the game instead of merely participated in it?)

Hell, it seems that you could do better than a mutual fund if you had just had a manager who simply invested in straddled options!

But what do I know!? But it would certainly be interesting to talk with someone who did!!! Richard, is Chloe free for a counseling session?

.....

And just to ramble for a minute or two...

Its funny how the simply concept of converting personal expenses to legitimate business expenses by establishing entrepreneurial businesses and reinvesting earnings into income producing assets until those assets generate more income than you have expenses thus providing financial independence sure is a foreign one in the schools in America. Instead all of us have been taught to save (and just let the money sit as it loses value due to inflation - but that really doesn't matter as we don't do that anyway!) and to "bet" on mutual funds.

Here, I have a prediction.

As so few baby boomers are financially established for retirement, I suspect that we have heard he last real effort at balancing the budget! Instead the cries of all of the folks who are not prepared for the gooberment to save us from ourselves (and they will outnumber the folks left to "invest" in, and prop up, the tax and social system), will quickly outstrip the ability of the government to supply the necessary health and support systems. In effect the gooberment will be 'upside down'.

And as the law requires all of the baby boomers to withdraw their IRA funds from the market beginning at age 65 or have them SEIZED by the government, I suspect that this divestiture will have a significant effect on the market!

...Especially as the incredible infusion of capital into the marketplace mandated by the gooberment's decision to shift us all into the private realm for our retirement planning along with the advent of the windfall tax revenue accelerated by the inception of Roth IRA's funded the big market expansion of the 90's!

So I would expect to see a sizable contraction of the market both due to divestiture and increased demand for social services.

I don't see a magic rabbit to pull out of that hat! You simply can't get out more than is put in! And the gooberment ain't going to do what is necessary to correct it - as neither party has the balls to stand up and tell the truth and speak straight with the citizens as they simply push the inevitable just far enough into the future so that it does not jeopardize their own re-election efforts! And unfortunately with the last Congress, the Republicans have proven just as phoney as the Democrats as they instead used the opportunity to line up and to see how they too could prove to be the biggest hogs at the trough at the same game that the Democrats had refined to an art for so many years.

And the Dems think the last electoral 'revolt' against the Republicans was a vote for THEM????? My @ss! In my mind many were voting against the phoney Republicans who postured themselves as fiscal conservatives, but who instead proved that they can compete with the worst of the Democrats and their tradition of pork and corruption.

From now on, I vote for gridlock. At least with that it will require a 2/3 majority to pass anything, thus hopefully limiting the stupidity that any group can inflict! And this is precisely what lead to the fiscal restraints that occurred in the 90's!

Just remember, we would HAVE a balanced budget amendment except for Al Gore as Vice President defeating the measure in the Senate with the sole stated reason being that the conservative crafted balanced budget amendment did not make an exception for a deficit in time of war! Anyone find the supreme irony in that? I'll give you a minute to think about it...

---------------------------------

This article appeared just a few weeks ago that some may find interesting.

"A few weeks ago I was talking with Tom Wheelwright, a CPA and business owner, about why people play the lottery. His comparison of the lottery to investing in mutual funds is worth sharing.

Even
though he's not an investment advisor and never presents himself as
one, clients continue to ask Tom what to do to prepare for retirement.
"Should I max out my 401(k) contribution?" they ask. "Should I open an
IRA? Or should I put more in my profit sharing or pension plan?"

According
to Tom, and contrary to popular belief, none of these are wise
investments. So here, in his own words, are his thoughts on the subject.

Games of Chance

Among
other reasons, 401(k)s and IRAs involve putting money into an
investment vehicle over which investors have little control. And since
most people end up choosing mutual funds as their primary investment
within these plans, playing the lottery would be a better way to go.

Gambling
away your retirement funds in a government-sponsored game of chance
that you have little hope of winning? Sounds crazy, right? Millions of
people buy tickets with the same hope. How sensible is it to play the
lottery when the chance that you'll lose the money you put in is so
high?

But the same could be said of mutual funds. After all, it's
also a government-sponsored program that you have little chance of
winning. So your chances of retiring on mutual fund investments in your
401(k) or IRA aren't very high, either.

A Taxing Dilemma

I once heard a radio interviewer ask a representative of a large mutual fund about the fund's performance. The rep said it had risen in value by an average of 20 percent per year for the prior two years.

But
when the interviewer asked about the average return to the average
investor in the fund, the representative responded that the average
investor had actually lost 2 percent per year. Why? Because the
performance of the market is unpredictable. Compare that to the
lottery, where the precise chances of winning and the exact amount of
the jackpot are known quantities.

As for the great tax advantages of putting your money into a 401(k) or an IRA, how is it a good deal to get a tax deduction when you're young and in a relatively low tax bracket so you can pay taxes on the money you take out when you're old and retired -- and probably in a higher tax bracket?

Also,
consider the difference in tax rates on capital gains and dividends if
you're not in a 401(k) or IRA versus the ordinary income tax rates on
the earnings when you pull them out of your 401(k) or IRA.

A Gamble Is a Gamble

So
should you just invest in mutual funds outside your 401(k) or IRA? No
again. Mutual funds result in capital gains taxes when the fund
managers trade them, even though you don't see the money. You have to
pay taxes even though the fund may actually have gone down in value.

Here's something else to consider: What about the lost opportunity cost
of the money you pay in taxes, which you could've put into other
investments? At least with the lottery, you know the exact amount of
taxes you can expect to pay if you win, and you only have to pay taxes
if you do win.

I can hear you saying, "But the lottery is
gambling! And I have no control over whether I win or lose!" You're
right -- the lottery is gambling. But so is a mutual fund. You have no control over the stock market and neither does the fund manager. If the market goes down, so does your fund.

No Big Payoff

At
least when you play the lottery you recognize that you're gambling. And
you don't have the government, financial institutions, and your
employer telling you that the lottery is a good investment. And your
employer doesn't go so far as to match the amount you put into the
lottery like it might with your 401(k).

But isn't there a better chance of making money in a mutual fund than there is in the lottery? Hardly. There may be less of a chance of losing all the money you put into a mutual fund than there is of losing all the money you put into lottery tickets, but you're never going to win big in a mutual fund.

In
fact, mutual funds are designed to minimize your returns by creating a
"balanced portfolio." If they could minimize the risk of the market
itself, that might be OK. But the problem is that nobody can minimize
the risk of the market without sophisticated hedge strategies that
aren't typically used in mutual funds.

If nothing else, the
lottery gives you a chance to win big, and you can sleep at night
because you aren't wondering if the chances of winning are going down
overnight because of something that happens in Tokyo.

Retire for Real

If
you don't like the idea that most of the money spent on lottery tickets
supports government programs, you should know that most of the earnings from mutual funds support investment advisors' and mutual fund managers' retirement.

You
take all of the risk, you put in all of the capital, but most of the
money goes to the fund manager and your investment advisor. Lottery
funds go to worthy causes like schools and the arts, so which is better?

Of
course, I would never advise a client to rely on the lottery for their
retirement, but neither would I advise them to rely on mutual fund
investments. For my dollar, the lottery is a lot more fun -- and at
least you know it's a gamble.

If you really want to retire, look
at other investments and work with someone who's willing to put in the
time to help you retire soon and retire rich. Financial freedom is
available to those who learn about it and work for it. It's unlikely
for those who want to rely on such risky investment strategies as
mutual funds."

Robert Kiyosaki

[oldtimer]

A lot of what he says here is just plain wrong. This guy got his start by buying real estate in Hawaii when it was cheap, more lucky than smart. His concept of buying income producing assets is good, but even he admits that the majority of his buys don't make money.

I find the concept interesting regarding the pay less taxes now versus paying more when you retire argument. You are alive today. You save because of the chance you might be alive past your working life. Why not maximize your earnings and your savings today instead of worrying about how much you might have to pay in taxes in the future? If the goal is to realize the adage "it's not what you make, it's how much you keep," then investing in tax advantaged accounts not only help accomplish this today, it also helps make sure you have an income in the future. Conversely, if you have no savings, you don't have to worry about paying those pesky taxes in the future now do you? Again, I am not against alternative investments, I believe a well thought out diversified plan will serve most of us just fine.

Mas where did you go to business school, my experience at UNT seems like it was richer than your description.

Coytee, if you have a copy of that book you mentioned, I am still interested in reading it.

[Coytee]

But what do I know!? But it would certainly be interesting to talk with someone who did!!! Richard, is Chloe free for a counseling session?

Her schedule is full, seems she's having a lot of counseling sessions with the local pack of Pit Bulls. They're having some kind of identity crisis with all the bad publicity and all.

[&]

[Coytee]

And just to ramble for a minute or two...

Here, I have a prediction.

....And as the law requires all of the baby boomers to withdraw their IRA funds from the market beginning at age 65 or have them SEIZED by the government, I suspect that this divestiture will have a significant effect on the market!

...Especially as the incredible infusion of capital into the marketplace mandated by the gooberment's decision to shift us all into the private realm for our retirement planning along with the advent of the windfall tax revenue accelerated by the inception of Roth IRA's funded the big market expansion of the 90's!

(it might only take you a minute or two to type these things out, but I'll admit it almost always takes me more than a minute or two to read them!!)

Are you suggesting a NEW plan to force distributions beginning at age 65 or that age 65 is the current reality? (current reality is 70 1/2 for qualified funds) Here's the deal (presuming I understand you to be saying CURRENT law is distributions start at age 65 of have them seized)

1. No one is "required" to take money out of their IRA until the year they turn 70 1/2. You actually have until April of the FOLLOWING year to take the very first distribution out. Meaning, if you turn 70 1/2 in June of 2008, you have until April of 2009 to take out 2008's distribution, BUT you also need to take out a distribution for year 2009. This distribution is called (depending on who you listen to) "RMD" or "MRD" Required Minimum Distribution or Minimum Required Distribution.

2. The penalty for NOT taking your RMD's out on a timely basis... if you are of age to require a RMD and you fail to take it that year (excepting the year you turn 70 1/2), the penalty is 50% of the amound you are SUPPOSED to take. So, if you are age 75 and simply "forget" to take your RMD and your RMD happens to be $10,000, then the penalty for NOT taking it is yes... $5,000!!! I agree that is a "seizure" but the way you presented it above suggests the goverment takes 100% of it (as though anyone will be happy at 50%) I only mention this to try to clarify.

3. The windfall tax revenue of Roth IRA's was I think, just that. An attempt by our goverment to find a "bucket of money" (IRA's) that they can squeeze some tax dollars from. They knew if they came up with this idea that many people would take them up on it and all the sudden, they'd have a windfall of tax money that they otherwise, would have not seen for probably decades. I think they're really setting up a screw job for the future, however, I admit to feeling I'd rather pay the tax on the "seed money" instead of the "harvest" and as such bring up the idea to people about doing a Roth in lieu of a traditional IRA although that suggestion is really more case specific.

Sugarlips says she's available since Chloe's not...

[&]

[oldtimer]

You're a good man Richard. Case specific is the only way to give proper advice, and in most cases a Roth is better than traditional in my book. Unfortunately the yearly limits allowed into either are not enough by themselves for retirement savings, unless you are starting out very young.

[Coytee]

You're a good man Richard. Case specific is the only way to give proper advice, and in most cases a Roth is better than traditional in my book. Unfortunately the yearly limits allowed into either are not enough by themselves for retirement savings, unless you are starting out very young.

Thank you and I agree with the generality that Roth is better than traditional.

Truth be told, another reason I don't say TOO much on these kind of threads (here or other forums) is some generic disclaimers of not knowing who's reading, if they'll understand my intended message, blah blah blah...The unfortunate part of that is at times, when I have spoken up in a thread, it's with 20 years of experience behind me not only as a 'retail broker' but also as a director of operations for a (small) broker/dealer where I wore many hats including payroll, compliance, trading, dealing with the NASD, filing our financial reports and sometimes fixing our network hubs or computers! Point being, I've got a wider background than your normal bloke. (not better, just wider). Couple that experience with my sincere intent to be of help to someone (as opposed to "selling" them something) and I view it more as a shame that an honest source of "good intent" is shut up for various reasons.

Another reason is simply this typed format. I've got some ideas in the back of my head, possibly great ideas for the right person and possibly terrible ideas for the wrong person (same idea) and as soon as it's posted, someone will jump ugly on it because it's not appropriate in this & that situation rather than look at the idea for what it is and explicitely for what it does and then decide if the intended result is indeed, worth looking into.

I've had some people simply argue with me until they (or we?) were blue in the face on how bad an idea was on the simple face of it. What they failed to notice were my comments about it being a bit unconventional and perhaps not for everyone BUT that it might behoove everyone to at least look at the numbers of it and see if it warranted any merit for them.

It ends up causing small novels to be written and it's simply SO much easier, better & more efficient to discuss it person to person.

MAS has it right when he offers to discuss with anyone on the phone further ideas/questions they might have about some of his comments. I've taken him up on that offer and have a lot of respect for his comments and intent to help.

[Spkrdctr]

Coytee, I'm checking with TD Ameritrade to see if I can do options in my Roth account. If I can, I will contact you for your ideas. I just don't have any money laying around outside of retirement accounts. Also, I'm living paycheck to paycheck right now. Due to the housing market going off a cliff. [:'(]

[Coytee]

Coytee, I'm checking with TD Ameritrade to see if I can do options in my Roth account. If I can, I will contact you for your ideas. I just don't have any money laying around outside of retirement accounts. Also, I'm living paycheck to paycheck right now. Due to the housing market going off a cliff. [:'(]

I can answer it for you. You can ONLY do covered calls in an IRA account. You will simply need to fill out an options agreement in addition to your regular account forms. No other option trading is allowed as it's deemed 'too risky' in spite of my disagreement about selling puts being a worthy concept. They dictate put writing MUST be done in a margin account which by definition takes an IRA account out of consideration.

Outside of an IRA, the irony to me is, the powers that be would (speaking of my bd firm) rather see an individual purchase outright 1,000 shares of ABC at $50 for a total of $50K (forget about commissions for the example) INSTEAD of the same individual depositing the 50K into their account as collateral for a purchase and SELL an ABC $50 PUT for say, $1,000. (let's not even mention the possiblity of selling a Put with a strike price of $45, five dollars below the market price in this example)

What is the worst case scenario that can happen if stock goes to zero??

A: Person who buys stock outright is out $50,000 as their investment turns worthless

B: Person who sold the Put OBLIGATING them to buy the stock for $50,000 is STILL out their $50K however, they can at least KEEP the $1,000 premium from selling the Put for a NET loss of $49,000

Now, if I was going to guarantee someone a 100% loss situation, would you rather be out the 50K or the 49K?

Why my bd firm has their head stuck in the ground is beyond me... well...actually it isn't...I've got a clue.

[Coytee]

Coytee, if you have a copy of that book you mentioned, I am still interested in reading it.

I thought I had a second copy and I was right. I just found it. (I bought an entire case of them and gave to my family & close friends for them to read)

If you'd like to PM me your address, I'll send it to you.

I would like to do so on the 'condition' that: Regardless of what you think of the concepts early on, you actually finish the book. It's over 500 pages and it's not until later in the book that he really starts to give his answers, so it takes a bit of patience to get to the interesting part.

The book sets up myths (or at least his perception of them) and calls them myth-conceptions.

The chapters headlines are:

Chapter 1 The $25,000 mistake: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

MYTH: The best way to pay off a home early is to pay extra principal on your mortgage

Reality: NO method of applying extra principal payments to your mortgage is the wisest or most cost-effective way of paying off your house.

Chapter 2 The $150,000 lesson on liquidity:

MYTH: Home equity is liquid

Reality: When you need it most, you may not have it. Home equity is usually non-liquid

Chapter 3 Separating home and equity to increase safety:

MYTH: Home equity is a safe investment

Reality: A home mortgaged to the hilt or totally free and clear, provides the greatest safety for the homeowner.

Chapter 4 Is your home really safe?:

MYTH: Homes with a lot of equity are less subject to foreclosure

Reality: Homes with substantial equity are usually the first ones mortgage bankers foreclose on if their mortgages become delinquent.

Chapter 5, The return in equity is ALWAYS zero:

MYTH: Home equity has a rate of return.

Reality: Equity grows as a function of real estate appreciation and mortgage reduction; however, equity has no rate of return.

Chapter 6, Make Uncle Sam your best partner:

MYTH: Mortgage interest is an expense that should be eliminated as soon as possible.

Reality: Eliminating mortgage interest expense through traditional methods eliminates one of your best partners in accumulating wealth and financial security.

Chapter 7, Use debt for positive leverage:

MYTH: Any and all debt is undesirable

Reality: Some debt, when managed wisely, can be desirable

Chapter 8, The cost of NOT borrowing:

MYTH: Lower mortgages, resulting in lower payments, mean lower costs

Reality: If you take opportunity cost into consideration, low mortgage-to-home value ratios create tremendous hidden costs that increase the time needed to pay off a mortgage.

Chapter 9, Home-made wealth:

MYTH: Borrowing funds at a particular interest rate, then investing them into the same or lower interest rate, holds no potential growth returns.

Reality: You can earn a tremendous profit regardless of the relative interest rates- by positioning your money in a tax-free, interest compounding investment that earns a return greater than the real net cost of obtaining that money.

Chapter 10, Strategic refinancing:

MYTH: Equity in your home enhances your net worth

Reality: Equity in your home does not enhance your net worth at all. Separated from your home, however, it has the ability to dramatically enhance your net worth over time.

Chapter 11, Selling your home effectively:

MYTH: The amount of equity you have in your home has no bearing on how marketable it is.

Reality: Your home may likely sell much more quickly and for a higher price if it has a high mortgage balance (low equity), rather than a low mortgage or no mortgage balance (high equity), especially in soft real estate markets.

Chapter 12, What is the IRS really saying?:

MYTH: To avoid capital gains tax, you have to use as much as possible of the cash proceeds from the sale of a previous residence in purchasing a new home.

Reality: Under the Taxpayer Relief act of 1997, a married taxpayer may exclude up to $500,000 (up to $250,000 if unmarried) of the gain on the sale of a principal residence. This exclusion can be used once every two years. Not one dime of equity from the former home needs to be put into the newer home to avoid taxation.

Chapter 13, Pay no money down:

MYTH: You must always pay cash down when you purchase real property.

Reality: There are many ways to purchase real property without paying cash down.

Chapter 14, House rich, cash poor:

MYTH: Financial security is, to a large degree, achieved when your home is paid for.

Reality: Financial security is usually obtained with adequate liquid assets in a safe environment to cover any liabilities and generate positive cash flow to cover living expenses indefinitely.

Chapter 15, IRAs and 401Ks, do you know the REST of the story:

MYTH: You will be in a lower tax bracket when you retire than when employed.

Reality: With the 1986 Tax Reform Act, and subsequent tax reform, most retirees in America will find themselves in a tax bracket at least as high, if not higher, than during their earning years. Why? Fewer deductions and exemptions.

Chapter 16, Why delay the inevitable :

MYTH: Qualified plans such as IRAs, 401Ks, 403Bs and 457 plans provide the most attractive retirement benefits.

Reality: Other non-qualified retirement vehicles may provide greater net spendable retirement income. Proper equity management can provide indirect deductions that may be comparable to qualified retirement plan contributions. More important, this strategy can provide TAX-FREE retirement income.

Chapter 17, Accumulating, Accessing, and Transferring your money tax free: MYTH: Life insurance is not a good place to accumulate and store cash, and is a poor investment.

Reality: Modern Cash Value life insurance can be designed to accumulate and store cash safely, provide tax-favored living benefits, and deliver tax-favored death benefits, all while safely maintaining liquidity and earning an attractive rate of return.

Chapter 18,Choose Investments that generate the most:

MYTH: Wise investors choose investments that accumulate the most money.

Reality: When considering tax effects, greater growth investment vehicles may be inferior to other investments. Choose investments that generate the highest net spendable income.

Chapter 19, Increasing your net spendable retirement income:

MYTH: Home equity cannot safely be used to supplement retirement income.

Reality: Through careful planning, home equity can be properly used and managed to increase net spendable retirement income by as much as 40 to 50 percent!

Chapter 20, Repositioning assets and attitude:

MYTH: Only lucky people with lots of money or discretionary dollars, taking high risks and achieving high rates of return, get wealthy.

Reality: You can often reposition current expenditures or investments in order to gain positive leverage. Returns of just 6 to 8 percent interest can create tremendous wealth. Your attitude will be the most important factor in determining the altitude of your wealth.

Chapter 21,Charitable remainder trusts:

MYTH: There is no way to avoid long-term capital gains tax on the sale and final liquidation of highly appreciated assets.

Reality: There is a legitimate method to avoid the payment of capital gains tax on the liquidation of properties, maximize retirement income from the proceeds, and still pass the value of the properties down to your heirs income-tax free.

Chapter 22,The Ultimate Arbitrage:

MYTH: You cant create positive cash flow income while living without working or using some of your own money, neither can you create an immediate estate or endowment at death without expending some of your own money.

Reality: Through the use of arbitrage, affluent, high net-worth individuals can create additional positive cash flow income while living, possibly without spending any money from their own pockets. They also can leave behind substantial endowments upon death to their families, businesses, or favorite charities.

Chapter 23, Empowering Truth Wealth:

MYTH: The estate-planning industry has created intellectual strategies and products designed to win the game of the U.S. Taxpayers right to earn and keep wealth, verses the governments right to confiscate and redistribute wealth.

Reality: With or without estate and inheritance taxes, with or without traditional estate planning, family wealth rarely survives three generations!!

[oldtimer]

pm sent, thanks!

[PhilMays]

Very interesting chapters. I found chapter 17 going against what I have believed in in the past. I would like to know more about that as I a a "term" life insurance kind of guy but just the other day thought about a variable plan.

Richard, you said something earlier that many people loose sight of. That is one statagy can be totally different for two people. I just read a column about stocks. When you buy a stock for a very good reason, someone is selling theirs to you for a polar opposite reason. The author commented that one should always consider that as well.

Case-in-point...I'm dabbling in Sirius Sat Radio on a gamble. For me it's money I can loose, for someone else it may be money they can't loose.

[dkp]

That looks like a great book! I love authors like the one pointed out as they dispell many of the myths that are so often put forth on the "talk show" circuit. It's good to have authors out there who actually think these things through, rather than parroting what they've heard others say. I'm a financial representative myself and have waged many a battle with clients over a number of the topics covered by this book. From what I can tell by the table of contents, it looks like a great recommendation. Thanks, Coytee!

-David

[dkp]

Very interesting chapters. I found chapter 17 going against what I have believed in in the past. I would like to know more about that as I a a "term" life insurance kind of guy but just the other day thought about a variable plan.

Richard, you said something earlier that many people loose sight of. That is one statagy can be totally different for two people. I just read a column about stocks. When you buy a stock for a very good reason, someone is selling theirs to you for a polar opposite reason. The author commented that one should always consider that as well.

Case-in-point...I'm dabbling in Sirius Sat Radio on a gamble. For me it's money I can loose, for someone else it may be money they can't loose.

Phil-keep researching that concept. This can be an exceptional strategy... for the right person.

-David

[Coytee]

Phil, check your PM's

[Coytee]

Phil-keep researching that concept. This can be an exceptional strategy... for the right person.

I agree. I just sent him a long pm getting into SOME of the basic logic. It's really kinda tough trying to explain some of this stuff via typing!!

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