Well I love facts. Pinging people doesn't qualify. You state the "facts" as you see them, expect others to believe you, have no basis for your "facts" other than the fact that your financial advisor has told you what he thinks you want to hear.
It's too bad what passes for debate around here sometimes are pre-textual opinions. Is your pinging of your fellow SQL's every time you post a cry for help or something else?
If you think that leaving out an entire class of people who invest in municipal bonds and pay no taxes on them is justifiable then your research comes up short once again.
Any financial advisor who places high income individuals into muni's that are subject to AMT is subject to complaint and losing his license for a while. Kind of like putting munis into IRA's.
The low yields on munis at the moment require the use of laddered portfolios so that shorter maturities come due they can be re-invested in higher r of r's.
Many people aren't suited for equities. Why would a person who has plenty of money to retire with want to risk it in the stock market? That makes no sense at all? Your financial advisor tell you otherwise?
If you're not getting an overall return of at least 7% or so on your financial assets, you can't both live on a significant portion of the income generated AND protect
And if you don't NEED to take risk? Why would you?
Dear groanup,
"Pinging people doesn't qualify."
Well, I actually stated why I pinged folks. Here is what I said: "I've pinged some folks who probably know lots more than me about it."
"Is your pinging of your fellow SQL's every time you post a cry for help or something else?"
No, but a request for more expertise.
"If you think that leaving out an entire class of people who invest in municipal bonds and pay no taxes on them is justifiable then your research comes up short once again."
Well, there may be some very wealthy folks who are that stupid, but I was talking about the entire class that comprises the top 1% of households, in terms of income. They have income that is about 17.5% of all household income in the US, and pay on average 27.5% of that income in federal income tax. Here's the link:
http://www.rushlimbaugh.com/home/menu/top_50__of_wage_earners_pay_96_09__of_income_taxes.guest.html
Now show me your documentation that shows that the very wealthy mostly invest all in tax-free bonds. Thanks.
"Any financial advisor who places high income individuals into muni's that are subject to AMT is subject to complaint and losing his license for a while. Kind of like putting munis into IRA's."
Well, there are a limited number of tax-free bonds available in the United States. One site at which I looked showed that there are about $1.9 trillion in bonds outstanding, as of the close of 2003. Most bonds are currently yielding between 3% and 4%. A little less for the AMT-free ones, a little more for the ones that can be taxed under the AMT.
That translates to maybe around $65 billion per year in income. That's ALL tax-free bonds, including those subject to the AMT. From what I can see, perhaps as much as half of these issues are free from the AMT (although I suspect in dollar terms, it's actually lower). That yields about $32.5 billion. About half of these are held by tax-free bond mutual funds. Believe me, folks with $10 million or more don't usually buy mutual funds. LOL.
Anyway, that leaves about $16 billion to accrue to all these very rich folks who buy all tax-free bonds.
But these households have nearly $200 billion annually in income.
Thus, it isn't really possible that most very rich folks are generating all their income (or even half their income) from tax-free bonds.
Like I said, tax-free bonds play a role in the portfolios of lots of very rich folks, but it's not the largest role by far.
"The low yields on munis at the moment require the use of laddered portfolios so that shorter maturities come due they can be re-invested in higher r of r's."
You can ladder all you want, the returns just aren't there.
"Many people aren't suited for equities."
The folks who aren't suited for equities usually never become rich. The ability to accept volatility and change is an inherent attribute in those who succeed greatly.
"Why would a person who has plenty of money to retire with want to risk it in the stock market? That makes no sense at all?"
Frankly, groanup, that's a naive attitude about financial assets. I've seldom seen it among successful business owners. I've never seen it among very wealthy folks.
Usually, this kind of attitude is more common among W-2 workers without requisite knowledge, skill, and experience in investing, or without the experience of successfully living from a business that may or may not yield the same amount of income every payday.
Your two questions reveal a misunderstanding on your part, that the stock market is especially "risky" as an investment vehicle.
It isn't. It's volatile. Prices of stocks go up, and they go down. There's a difference between volatility and risk.
Most folks buy and sell on emotion, and they buy when prices are high, and sell when prices are low.
When a stock is hot, and the price is high, folks think, "I gotta have that stock." When news of the company is bad, and the price drops even below its real value, people say, "Oh! That stock is in the toilet! I paid $30 per share, and now it's SIX! I better sell!"
So, yeah, you're right, buying equities isn't for everyone.
But most of the folks who get to be very rich understand the basics of investing - buy low, sell high. Resist transacting on emotion.
Volatility is the friend of the real investor. The real investor recognizes that volatility isn't true risk, just volatility. The real investor understands that there ARE risks in stock investing, but share price volatility isn't intrinsically risky.
A diversified, carefully-researched portfolio is not especially risky. The likelihood is that it will yield some current income, and will likely appreciate at a rate greater than the rate of inflation.
A portfolio comprising all tax-free bonds is very risky, unless you're 80 years old or older, and in bad health.
The risk comes from inflation. A 60 year old investor, living on his financial assets, could easily live another 30 or 40 years. In 40 years, the rate of inflation could quadruple the cost of living, in nominal dollars. That means that the fellow with $10 million, getting 3% in all AMT-free bonds (you pay a bit of a premium for the AMT-free issues) is living on $300K per year. Pretty good.
But in 40 years, his $300K may only be worth $75K in today's dollars.
Without the ability to grow his capital, inflation will eat away most of the value of his wealth within a few decades.
THAT's risk.
"Your financial advisor tell you otherwise?"
Absolutely. Losing ground to inflation is an ugly way to lose a large part of your wealth.
"And if you don't NEED to take risk? Why would you?"
The real risk for someone not on death's doorstep is to lose one's fortune to the ravages of inflation.
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