investments | Online Savings Blog

Should Corporations be Taxed to Avoid Speculation?
06.30.08 | Taxes | 0 Comments | by Fred Siegmund

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In the last chapter of his new book, The Age of Turbulence, former Federal Reserve Chairman Alan Greenspan says new technology innovations sometimes slow down so much that new machinery and equipment is not worth the investment for corporations.

For example, the fall off in investments after 2000.

"The slow down in innovation is particularly evident in the dramatic swing in corporations' use of their internal cash flow from fixed investment to buybacks of company common stock and cash disbursed to shareholders in the process of implementing mergers and acquisitions."

After citing some investment data, he concludes, "A corporation returns equity capital to shareholders when it cannot find opportunities for prospective risk-adjusted rates of return superior to the rate of return that the corporation returns from existing assets. Large cash disbursements to shareholders are usually a signal of lowered prospective rates of return on fixed investments available to the corporation, the likely result of a slowed pace of profitable new application of innovation."

Wow! Chairman Greenspan tells us corporations sometimes have profits but few capital investment opportunities, so they turn to speculative buying and selling of stocks for implementing mergers and acquisitions. Buying and selling in mergers and acquisitions creates work for lawyers and securities dealers along with speculative opportunities, but it creates nothing new for Americans.

The federal government could sell bonds to finance public projects like the construction of levees for New Orleans and the Mississippi river. Some of the loanable funds that keep going into assorted mergers, acquisitions and other speculations could be redirected to an important public project.

However, public projects mean new taxes to pay interest and principal. Taxes are already high for millions of Americans who oppose new taxes.

If Mr. Greenspan is correct and corporations have profits for speculation while public projects like New Orleans' levees go unfunded, then higher taxes on corporations and lower income and payroll taxes for individuals would decrease America's savings available for speculation and increase America's savings available for public projects.

Notice I did not say it is fair or unfair to change taxes, only that the distribution of income and taxes will change how America saves and invests. Remember savers, the value of your savings depends on the quality of America's investments.

What should we do about taxes? You decide.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
What Happens If My Investment Company Fails?
05.08.08 | Online Investing | 0 Comments | by Tom Valenti

I'm in the process of bringing over an IRA to the company where I do most of my investments. I thought having as many things in one place would be convenient for me and my eventual heirs.

Then I got to thinking — what if my investment company had some type of Enron-like collapse? Would my balances go down the drain with their stock? Or am I exempt, because my balances are not invested in the company, but instead in mutual funds they offer?

So now I'm thinking, maybe not only is diversification amongst holdings a good idea, but diversification of the companies you do business with may be a good idea as well.

In reality, my investment company is a very large industry leader, so I couldn't imagine that they would not be bailed out by another company or the government.

But what if I was consolidating my assets with a smaller company that carried no clout? Could I lose everything if they went under?

Does anyone have any insights or thoughts on this topic?

Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. Read Tom's blog at http://thriftyhomeowner.blogspot.com or learn more about him at http://tomvalenti.com.
Are You On a Fixed Income?
03.24.08 | Money | 1 Comment | by junger

The other day, I was watching a news report on how the stock market's up and downs are affecting senior citizens — specifically, those on a fixed income.

It got me thinking — am I on a fixed income? What does it mean to be on a fixed income?

Here's what Wikipedia has to say:

Fixed income refers to any type of investment that yields a regular (or fixed) return.

For example, if you borrow money and have to pay interest once a month, you have issued a fixed-income security. When a company does this, it is often called a bond or corporate bank debt (although 'preferred stock' is also sometimes considered to be fixed income). Sometimes people misspeak when they talk about fixed income, bonds actually have higher risk, while notes and bills have less risk because these are issued by Government agencies.

The term fixed income is also applied to a person's income that does not vary with each period. This can include income derived from fixed-income investments such as bonds and preferred stocks or pensions that guarantee a fixed income. When pensioners or retirees are dependent on their pension as their dominant source of income, the term "fixed income" can also carry the implication that they have relatively limited discretionary income or have little financial freedom to make large expenditures.

So, if your investments are paying out a certain amount of income over a given time period, you're on a fixed income.

But what if you're on a salaried paycheck? Aren't you getting a fixed amount of income every paycheck?

For the most part, I know how much money will be coming in to our bank account every month because our paychecks are consistent. Isn't that being on a fixed income?

For hourly workers, salespeople who work on commission and 9-5ers with inconsistent part time work, each month, your budget's "intake" column probably looks different. You don't necessarily know how much money you are earning until the month is over.

So if you're a salaried, non-commissioned worker, you're probably on a fixed income. Live like it.

It might seem a bit counterintuitive, like when I say I live paycheck-to-paycheck (even though technically this isn't true). Knowing how much money you have to spend, save and invest each month puts you on a fixed income — and helps you prepare to achieve your goals.
The Retirement Conundrum: Near-Term vs. Long-Term Goals
03.03.08 | Money | 4 Comments | by Tom Valenti

Everything I read tells me the same thing when it comes to saving for retirement: contribute to your 401(k) and start a Roth IRA.

I contribute to my 401(k) so that my employer-match is maximized, but that's it. I don't max out on the overall contributions, nor have I yet opened an IRA.

Many people would tell me I really should either max out the 401(k) and/or start funding a Roth. I totally understand why they'd say that; I realize the benefits of tax-free growth.

But the reality is, I have near-term goals that need addressing, namely purchasing a larger house, getting ready for a family, and saving up for a possible business venture.

Socking away a bunch of money for use when I'm 60 or beyond is the practical, conservative thing to do.

But what happens if I never reach that age? Or what if I do reach that age and do get to my money, yet I realize my "prime years" were spent living in a cramped house, working for someone else, and did not contain any luxuries?

Has it been worth it?

I'm not saying I'm not planning for a retirement, because I am with my 401(k) and other investments, including mutual funds and real estate.

I am planning to use those investments wisely and spread them out over my life. So I'm not so sure the bulk of my savings should go into formal retirement programs.

If anyone has any advice or has been in the same situation, I'd like to hear it.

Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.

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