The Online Investing AI Blog

Here’s what ticks me off.

I was just reading that dividend taxes may rise. OK, rise isn’t really a good way to put it. Skyrocketing more than 160 percent is a better way to express the pending tax.

Now, I think taxes are necessary evils. I just want a fair, limited system that requires the goverment to live within its means, just like we all do. Is that too much to ask? Apparently, the answer is yes.

But this tax hike is just plain evil.

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Pic by phaul @ Flickr

Just when you thought it was safe to start spending and investing again, right?

The recent turmoil in Greece has had a bubbling effect throughout the world. The crisis may or may not have been responsible for about a trillion dollar drop in the stock market, but it was definitely responsible for a trillion-dollar bailout.

But, who cares? Those things are not on your personal financial radar map.

Or are they?

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Pic from alancleaver @ Flickr

Taxation with representation turns out to be pretty bad, too. And Investors and traders have enough to worry about in the taxation categories. They also have enough to complain about.

There’s capital gains tax and income tax for starters.

Then, there’s the ever-controversial double taxation of dividends.

According to an article from Yahoo, governments are just getting warmed up and while investors won’t necessarily bear the brunt of most of these taxes, they won’t escape them either.

In the ever-expanding need to buoy struggling governments, politicians are discovering some weird ways to bring in money.

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Business Strategy, Investing, Money, Online Investing AI, US Economy depression, Great Depression, income tax, Money, recession, revenue, taxes, wealth

Daquella manera@Flickr

Stimulus packages, like the colossal one hoisted on Americans in the midst of an economic panic last year, is the perfect macroeconomic analogy to the microwave mentality.

We want our answers to be super hot and super quick. And we want them to require minimal effort. Except that, these quick answers, just like the nutritional value of some of those microwave meals, might not be as satisfying in the long run.

Instead of designing a designing a budget that trimmed excess and promoted long-term growth, the government did exactly what it’s been warning citizens not to do: rely on credit.

Look free money! You could almost hear the government shout when they announced the plan. Although the panic is behind us, the pain and payment of the stimulus may just be starting. The bill, as a matter of fact, is beginning to show up in several unexpected ways.

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Accelerating Technology, Business Strategy, Investing, Money, Online Investing AI, US Economy economy, regulation, stimulus, taxes

Many people feel that the government is unfair, or that life is just plain hard. They think that taxes are too high and that the government oppresses the people. That is probably true in some other countries, but I don’t think it’s true in America.

If people live in America and they feel that any aspect of their life is limited, I wonder if it is more a product of their thinking rather than anything the government has done. People are not sneaking into Iran.
People are not trading their life savings to get passage to Cuba. Everyone wants to come to America.

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Can you imagine the following scenario:

You go to the bank with a couple thousand bucks and you decide you’ll open up a certificate of deposit. You ask the teller, “What’s the interest rate for my account?”

“Oh, zero.”

“The interest rate is zero?” you ask again, incredulously.

“Right. Zero. Nada. Null. Nothing. None. El Zippo.”

Then the teller adds, “We keep your money for a year and then we’ll give it back to you.”

If you’re smart, you’ll leave the bank and this surreal scenario in quick order. But, actually, in real life, most people do the very same thing when they treat their tax return as some sort of annual magic windfall. In truth, they just gave a no-interest loan to the government.

But, people who don’t have the discipline to save, use it almost like a Christmas club account. And, when they receive the check, they sort of act like mini-lottery winners; they waste it.

There’s a simple reason how this no-interest loan became a financial tradition.

Most people don’t want to end up owing the government money in one lump sum at the beginning of the new year. And, most people don’t want to trust their interpretation of the rather extensive tax code to figure the right saving amount to cover their tax liabilities.

Some tax experts suggest that you have your employer deduct the minimum amount necessary. Then, take advantage of every legal deduction you may qualify for. Then, each month, set aside an amount in an interest-bearing account that would cover any possible amount you might owe. (One way to do this is to take last year’s return and divide it by 12. Save that amount each month.)

If you can do this, you can be both a good citizen and a smart investor.

This is the third post in a series about financial myths that make you poor. For more information, you might want to read the previous article in this series. It’s called: Myth: Falling Markets Threaten Your Wealth.

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Investing, Money, Online Investing AI, US Economy government, income tax, IRS, no interest loan, return, savings, tax, tax day, taxes

My friend told me about the time he visited New Orleans on a business trip and decided to visit one of those Voodoo shops. The owner, a priestess of sorts, gave my buddy a magic bag–or a mojo bag–to help him with his sales presentation.

What the heck, he said, and took it along to the meeting… And his presentation was a smashing success.

Now, my friend isn’t a superstitious guy, so he decided to open up this strange bag to find what magic amulets or lucky coins had driven the success of his presentation. Inside of the mojo bag, he was a little disappointed to find a bunch of twigs and stones. All quite common.

My friend concluded the magic was never in this little purple velvet bag tied by a red ribbon; he had carried the magic inside himself.

I was just reading over Warren Buffet’s letter to Berkshire Hathaway shareholders and I think Buffet points out the major ingredient in the market’s mojo bag: confidence.

Buffet writes:

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a
paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle.

Fear led to business contraction, and that in turn led to even greater fear.

But I’m willing to go into the root of this problem one step further. Americans are dysfunctional about wealth-creation. As a general rule, people love to create wealth for themselves and are envious when it is created for others.

Over the past few years, I have heard the constant drumbeat in the media that rich people are evil. Granted, rich people can be jerks. So can poor people. In fact, on any given day, I can be a jerk.

But, trying to shake down anyone’s money–rich or poor–because they may be jerks will never cause money to flow better.

There’s another concern. Once, investors really had no choice but to keep their money in American accounts. That’s no longer the case. We are part of a global economy and a global investment environment. Smart countries will be glad to take investments from Americans and let them compound their money without cumbersome taxes.

Change has not come to America. It’s the same old politics of greed and envy and it’s producing the same old bad mojo. Until we correct our own attitudes toward wealth creation, long-term prosperity and equality can never take root.

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It seems that the Internet is capable of revolutionizing every aspect of human life. Originally, it changed the way people shopped. Then, it made it possible for everyone to have their own magazine, and called it the blog. Now, it introduces transparency and accountability to the political system!

The PolitiFact website tracks over 500 promises made by Obama, so far. And, it keeps a running total of every promise he has kept, forgotten about, or compromised on! This allows everyone in the world to see just how honest the president of the America is!

George Bush Senior was famous for for promising “Read my lips: no new taxes.” It was easy for the American public to remember and recognize the sound bite. And it was easy to notice when he raised taxes.

But the Obameter allows everyone to track every promise in great detail. There is an explanation of exactly what the promise is, and what action Obama took to make it happen.

So perhaps this will usher in a new era of accountability for politicians. In the old paradigm, politicians would say anything to get into office, do whatever they wanted for four or eight years and then move on with their lives. I hope that old paradigm is gone. Perhaps in this new paradigm of transparency will give us a new level of honesty from the political system.

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I don’t mean to turn this blog into a political soapbox, but I think there have been some issues missed by the media, who seem always to boil down arguments to the simplest and most divisive denominators. So, I thought I would explore.

By now, we all have met Joe the Plumber. Joe says that a tax hike on people making over $250,000 would hamper his ambitions to expand his company.

But there’s a more direct impact of new tax plans. I call him–and her–Joe and Josephine Investor. Capital gains and dividend tax increases will be levied against all investors, not just rich ones. For those who reinvest dividends, the tax is a triple whammy. Corporations are taxed. Their dividends are taxed. And then when the money is re-invested, this is taxed as “income,” although technically it’s not being used as such.

In other words, taxing investment income will hurt all investors, not just the rich it’s aimed at.

The middle class investors, who are hoping to one day rely on his trading and investment incomes to become financially independent, would find the barriers to that entry perhaps not stopped, but hindered.

So, maybe they could take solace in the fact that this money would be redistributed to help the nation’s poor. After all, we’re constantly told that the wealthy are getting wealthier and the poor are getting poorer. The government would use this money to “spread the wealth around.”

Unfortunately, a quick look at the statistics suggests that this isn’t true. Tax receipts have steadily climbed with economic expansion, right along with this “income gap” between rich and poor. Similarly, the budget–and, despite this increase in funding, the deficit–have rapidly increased.

From this, we can deduce that the real problem doesn’t seem to be redistribution of wealth, but that the redistributors, i.e. the government, aren’t doing such a great job. In fact, they’re doing a lousy job.

The solution, I feel, isn’t to increase taxes.

An initial solution is to move beyond looking at the economy as a zero-sum game between classes and unleash the exponential investment power of the entire population. The wealthy have become wealthier in large part due to the investment choices they have. The poor and middle class don’t have the access to exponential-type investments, like hedge funds and private equity firms.

This will take improved education and better investment vehicles (which we’re trying to work on).

Obviously we need to remove the middle man (or middle bureaucracy) from the equation; or at least improve the redistributors. Investing directly into people might be a start. Whether it’s a corporation or a web of government agencies, mindless bureaucracies have less of a chance to improve conditions like wealth disparity, but direct investment and individual action will.

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