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September 23, 2009: What’s in a Headline?

I’ve read a number of articles lately about the sizable losses posted by the largest endowments in the country for the year ending June 30, 2009. Yale’s $23 billion fund was down 25%. Harvard lost 27%. Cornell, Penn, and Columbia also suffered. Duh! Of course these massive funds suffered losses—the financial world was upside down last year. But I’m disheartened by the headline attention to one year’s returns and not the market trouncing long term performance of these funds. For example, Harvard’s average annual return over the past 10 years is 8.9% compared to a 60/40 equity/bond portfolio of 1.4% over the same period. Yale earned a 12% return over the 10 year period ending June 30, 2009. Compare that to the negative—yes, negative—0.31% return of the S&P 500 over the past 10 years through September 22, 2009 and I have only thing one thing to say: Focus, people. Focus on the big picture, long term performance and don’t get distracted by the attention grabbing headlines. There’s always more to the story than a headline conveys. Trust me, I know. I used to write eye-catching headlines for my Fool and Morningstar articles to capture attention.  

August 25, 2009: A recent WSJ article revealed the results to a Gallop Poll that asked: “Do you think now is a good time to invest in the financial markets?” In February of 2000—just before the disastrous dotcom bubble burst in March 2000—78% of investors believed it was a good time to invest. Then in March 2003—just before the S&P 500 embarked on an 88% increase through mid October 2007—41% of investors agreed that it was a bad time to invest.

Clearly investor sentiment is not a reliable gauge for when to buy and sell. This is why I preach AND PRATICE a disciplined portfolio approach to investing. Take emotion out of the equation and you’ve got a much better chance of achieving your goals. That said, if you don’t have a plan to reach your goals, you’re just plain lucky if you achieve them.

August 19, 2009: I’ve been looking for an outlet to keep my clients informed about the numerous issues that impact their financial lives. Here it is, the TNL Asset Management Blog.

My first entry is to educate those about the progressive U.S. tax system by highlighting some little known statistics. But first, a caveat. I’m not philosophically against a progressive—the more you make the higher percentage you pay—system. I’m simply tired of Congressman, Congresswomen, and political gas bags claiming that they want to give “average” Americans a “tax break”. Focus in on “tax break” because that’s the focus of my rant.

In order to get a tax break, one must first pay taxes. According to 2007 data, the latest available from the IRS, one-third of filers pay no—that’s zero, zilch, nada—personal income tax. One-third! The bottom 50% of earners with an adjusted gross income (AGI) of $33,000 have an average tax rate of just 3%. The top 1% have an average tax rate of 22%.

The other end of the spectrum—dealing with the so-called rich—provides even more confounding stats. The top 1%, those families with annual incomes above $410,000, pay 40% of all the personal income taxes. That’s $4 of every $10 collected by the IRS for personal income taxes paid by 1% of the families. Add in the next 4% of income earners—those with more than $160,000 in annual income—and you’ve sequestered the payers of 60% of all personal income taxes in America. Put another way, the top 5% pay nearly two-thirds of the personal income taxes in this country.

Just to cap off my IRS Statistics class, chew on this next time your contemplating a tax the rich plan, the top 1% of American families pay more than the bottom 95%. Increasing the burden on the wealthy to support the rest of the country may seem “fair” to some—especially since their numbers are so small and they receive little sympathy from the less fortunate—but based on the facts above, can we really keep demanding so few bear so much of our fiscal responsibility.

So next time you read about a plan to raise the top marginal tax rate or slap a surtax on those making over X amount of dollars, remember who pays for your defense and who funds your infrastructure.