Conference nyoss1::market_investing

    I'm not a bond expert, but I've always been led to believe that the
    time to get into bonds is when interest rates are high and starting to
    fall, NOT when they are low and poised to start rising. And rise they
    must I believe, since the rates are so low nobody is going to want to
    fund our national debt any more. When the treasury starts having a
    tough time selling bonds, notes, etc. at auction, you can guarantee
    that rates will begin rising!
    

RE:.0 by SCAACT::RESENDE "Spit happens, Daddy!"

> I'm looking for a tax-deferred or tax-free investment that will provide a 
> reasonable return (the fixed annuity this guy tried to sell me paid 7.5%, 
> guaranteed for a year; I'd be happy with that or something slightly less).  

Over the next 25 years,  equity (owning something,  stocks or farm land or
rental property) is likely to be a better investment than bonds (interest 
bearing debt).  Equity investments can be tax deferred:  you don't usually
pay taxes until you sell.  They can even shelter some income from taxes.

There are sure to be some stocks (and some real estate investments) that
will not turn out so well.  But a big enough slice is likely to better than 
reasonable risk debt. 

If you have a reasonably small amount to invest (less than $20K to $40K) an
index fund or an equity income fund (a fund owning mainly dividend paying 
stocks) is probably the best choice.  You pay management fee's and will pay 
capital gains taxes.

If you have a larger amount and you are willing do some stock picking,  buy
stocks directly.  Buy at least 10 different stocks in similar dollar amounts.
You will pay commissions when you buy.  You will pay commissions when you sell.
If you hold the average stock long enough,  you can pay less commissions than 
you would have management fees.  If you make a habit of selling any big
losers (perhaps buying them back after 31 days) and holding on to gainers,  
you can reduce current taxes.  Use a discount broker.

Real estate is a lot harder to give general advice on.  If you live in farm
country,  farmland has been a pretty good deal.  Of course,  it can go down
as well as up,  and isn't very liquid.  If you want the hassles of being a 
landlord,  rental properties can be a good investment as well.


Phil

    I agree with .2: for 25 years you should go with equities.  That's
    long enough that you shouldn't worry about short term risk.  While
    taxes are a consideration, we can expect lots of tax law changes
    in 25 years: it's not worth avoiding current taxes at the cost of
    illiquidity and low return.  Fixed-return instruments are not for
    long-term investements, as historically they only break even after
    inflation and taxes.  Equities are no panacea, but they are the
    best long-term investement available to the average citizen.
    
    In particular, I'd recommend you consider international (foreign)
    equity funds, as well as growth.  When the baby-boomers start 
    to retire, growth in the US economy will slow drastically--you'll
    want to have much of your money in less demographically threatened
    economies.
    
    Since you seem to be risk-averse to some degree, how about this
    plan, which eases you into volatility gently?
    
    Initial allocation:
    
    	80% balanced fund (e.g. Vanguard Wellesley)
    	10% aggressive growth (e.g. Nicholas or 20th Century Growth)
    	10% foreign (e.g. T. Rowe Price International Stock)
    
    Set it up so you get the dividends/interest from the balanced fund
    and the other two do re-investment.  Split the checks from the
    balanced fund into equal halves and send them into the other two.
    New money you save along the way should go into the two growth
    funds as well.
    
    Result: low initial volatility, gradual transfer to the growth and
    foreign funds.
    			-John Bishop

    (I went back and re-read .0--since this is about the "retirement"
    part of that note I'm adding it as a separate reply rather than
    re-editing .3)
    
    If you're saving for retirement, you should look into IRAs and the
    SAVE plan.  Of the two, the SAVE plan is better, as IRAs have various
    restrictions on deductibility (see your local IRS docset for details). 
    Within the SAVE plan you should again pick equities for the bulk of
    your investement, though there's a good case to be made for having
    a fraction (20% or so) in interest-bearing investments given that
    the income will not be taxed--it acts as an inflation hedge.
    
    While there's a real advantage to the tax-free compounding of IRAs,
    you have to think of them as untouchable funds--so be sure you're
    happy with that thought.  And the tax law will change in this 
    area--but I don't know which way!
    
    So, a DEC employee who wants to save for retirement in the far
    furture out of current income should:
    
    o	First use SAVE until the maximum contribution level is reached.
    
    o	Then consider an IRA if his or her income is low or he or she
    	is willing to do the paperwork involved to track which IRA
    	contributions are deductible, etc. (I'm not, but you might be)
    
    o	Then follow the advice in .3 to go for regular taxable assets
    	in equity funds.
    
    If you're using existing savings, then you're limited to the last two
    options.
    			-John Bishop

    One comment on .4.  If you are using existing savings, you could still
    contribute to an IRA.  In fact, if you do so before 4/15/92, it still
    counts as a 1991 IRA contribution, and, subject to the limitations, can
    still be taken as an adjustment to income.  Most mutual funds have
    IRA's.
    
    Bob

Long term interest rates over the past 60 years have averaged around
5 to 6%.  From a historical perspective, the 7.65% yield for treasuries are
still on the high side.

Now  you guess which way the interests are going..

Gim

    Well, when large Japanese institutional investors have a choice of
    buying U.S. Bonds in the ~7.5% range, or German Bonds in the 9%-10%
    range, they more and more nowadays are choosing the German bonds. They
    are not helping to finance our budget deficits as much anymore. Since
    we need them and other international investors to fund our fiscal
    irresponsibility we have no choice but to make our bonds more
    attractive. The only way to do that is force the rates up. So that's my
    guess.
    

    re .4, .5
    
    What I meant was that if you have a large amount of existing money
    you wish to invest, you won't be able to invest it all in an IRA
    due to the limit on annual contributions.  You can certainly fund
    an IRA with existing money up to that limit ($2000 or 10% of your
    annual income, I believe).
    
    Imagine that you have $100,000 (lucky you!).  You sign up for SAVE,
    and put $2000 in an IRA for 1991, and $2000 in an IRA for 1992.
    You still have $96,000 to invest somewhere.  Assuming it throws
    off more than $2000 in income each year, you could fund your IRA
    to the limit from now until forever--you would still have the
    problem of what to do with the existing money.
    
    		-John Bishop

    Re .6
    
    I wonder how these historical rates would stack up against
    the historical total-Federal-debt/GNP ratio. I haven't checked
    lately, but the latter ratio did not look very pretty when
    I last did.
    
    I have to assume the bond market is currently not too worried
    about the total Federal debt outstanding. There are, however,
    some people out there who're anxious the Government may quite
    literally go under at its current rate of borrowing. Of course,
    unlike us ordinary mortals who face difficulties when saddled
    with debt, the Government has available to it that handy 
    last resort of printing a lot of green paper. I won't relish
    elaborating on what that would do to rates, and the prices of
    any bonds you may decide to buy at the moment.
    
    The outlook for Government borrowing continues to look 
    rather bleak in the near future. Any hopes of a new-found 
    fiscal restraint appear to be fading rapidly, as the
    election gets closer and populist ideas are broached
    - and welcomed - on a daily basis.
    
    Ganesh. 

    I didn't mention it in the base note, but we put $2250 into an IRA
    every year.  And I'm maxed out on SAVE -- the full 8% is deducted from
    my paycheck.
    
RE: <<< Note 53.2 by BOXORN::HAYS "Of what is and what should never be..." >>>
                 -< Equity may be a better deal over 25 years >-

> Equity investments can be tax deferred:  you don't usually
> pay taxes until you sell.  They can even shelter some income from taxes.
    
    Can you elaborate on that?  What kind of equity investments are
    tax-deferred?  What kind are tax shelters?
    
    I was under the impression that capital gains are taxable only when the
    shares are sold, but dividends are taxable income even if re-invested. 
    Is that wrong?  BTW, I'm talking about a mutual fund here, if that
    makes any difference.
    
    Steve

RE:.10 by SCAACT::RESENDE "Spit happens, Daddy!"

> Equity investments can be tax deferred:  you don't usually pay taxes until 
> you sell.  

I'm sorry,  but the above statement was not precise.

Equity investments often throw off income that is taxable.  You only will pay
capital gains taxes if the investment is sold.

Mutual funds distribute their gains from sales to their shareholders.  Mutual 
funds with similar records before taxes may be quite different after taxes.  
If fund A holds stocks for 10 years and fund B holds stocks less than a year,  
and the pretax gain is similar,  fund A will do much better after taxes by 
deferring gains an average of 5 years.  

Capital gains distributations are taxable.


Phil

A couple of obvious points:

If you invest in stocks that pay no dividends (or very low dividends), you
won't have to worry about paying taxes until you sell.

You can do better with taxable investments than with non-taxable or
tax-deferred investments if you pick the right investments.

    Depending upon what state you live in (I am in TAXACHUSETTS), Double
    Tax Free Mutual Funds look good. In a state with high taxes, it is
    advantageous to look at these since their return is not taxed by
    Federal or State Gov't.

re                    <<< Note 53.13 by COGITO::LMARCOCCIO >>>
                           -< Tax-Free Mutual Funds >-

>    Depending upon what state you live in (I am in TAXACHUSETTS), Double
>    Tax Free Mutual Funds look good. In a state with high taxes, it is
>    advantageous to look at these since their return is not taxed by
>    Federal or State Gov't.

This is what I've been doing for the last 1.5 years or so, and lately, the
share prices have been going up.  Last year, one of my funds (Dreyfus MA tax
free), turned out about 6.05% with a share price increase of about $0.75
and my Scudder tax-free (not entirely, though) was even better.  

I say int. rate are going to go down even further before we are out of this
mess, hence I'm holding on to my bond funds for now.