Please learn before putting down money

[Corydoras]

Something I've been wanting to say for a few days is that people shouldn't put their money into what they don't understand. I hope this doesn't offend anyone. I'm just urging people to get information.

We have members on this Sound Money forum ranging from those who have never so much as bought a silver coin to those who are making their living in options and forex to everyone in between, and I think this is exciting. But I'm a little worried that there are some lurkers out there who don't understand the concepts of asset protection and investment.

I just want to encourage people not to go by only what people on this board mention, but also to investigate for themselves and make sure they have basic concepts under their belt. It's good also to realize that taxes get messy if you do sell investments... goodbye to 1040-EZ, hello to Schedules.

I think it's vital to understand the difference between bullion and numismatics, the difference between stocks, ETFs, and mutual funds, the difference between a money market account and a checking account, etc.-- basic concepts. I think it's nice to understand concepts like the beta coefficient as well.

I think it is deeply important for people to understand the tax advantages of IRAs (Roth and traditional), 401(k), and 403(b)-- given the advantages, you may never want to invest outside of those entities again unless you have more than $19.5k/year to invest... but you may have good reasons to choose differently... just get the information so you can decide.

I do think it is useful to learn ahead of time about the taxes you will need to deal with when you want to sell, because assuming that you are going to pay your taxes, you may be in the position of having to explain these things to your tax preparer rather than sitting back and letting them give you blank stares.

I've tried to follow these guidelines in my own life. For example, I have no idea whether, if I buy and sell a currency ETF, I have to pay taxes on any profit. So until I find out, I won't buy a currency ETF.

Remember to keep an emergency fund of 3 to 6 months of living expenses. Sure it's in FRNs and will depreciate with inflation, but you need that money in a quick-to-access form that will feed your debit card and put pieces of green paper in your hand within minutes.

And remember the lowest-tech form of investment in inflationary times: Buy up everything you can eat or use in your household that will last that you will use that you are confident will go up in price, starting with toilet paper and rice. It ain't glamorous, but as long as your home doesn't burn or get flooded, you know you will have it cheaper than if you bought it later.

I think investments and precious metals are the only way people can hope to hold onto money in a loony system that penalizes savers. But please do your homework.

:)

[RSLudlum]

Thanks for a very thoughtful post.

[amy31416]

Very good post. I'll urge the same fiscal caution and critical analysis for donations to causes and candidates as well.

[Cowlesy]

5 Stars -- good advice.

[OptionsTrader]

Educate yourself is the first step and an ongoing process. It never ends.

I recommend starting in forex. The concepts can be applied to all other trading.

[Corydoras]

Educate yourself is the first step and an ongoing process. It never ends.

I recommend starting in forex. The concepts can be applied to all other trading.


Note also about what has been said here about actually doing forex, compared to using demo accounts or simply learning the concepts:

http://www.ronpaulforums.com/showthread.php?t=126819
:)

Also, doing taxes on forex seems like such a headache, I've never wanted to do forex, but YMMV.

[Corydoras]

There may be people around here who have never run across the stereotypical advice to beginners:

Use dollar-cost averaging to put 20% of your gross pay every pay period into an index mutual fund in your 401(k) or 403(b) (and after you've maxed them out, in your IRA).

Make sure you understand each of those terms, and then you are in a good position to modify the advice to your own beliefs. For example, you could do the same thing, but invest in a gold-mining fund instead of an index fund.

The variations are essentially infinite. Just learn.

[OptionsTrader]

You can start in forex for a couple hundred bucks and learn a great deal without risking much capital. Will you lose money? Yes, probably. But you will remember the lessons.

[forsmant]

Life is risky, just ask Death.

[CitizenPlain]

...

[raiha]

Is there an "Economics for Dummies?" book? You know..."The Idiots Guide to Survival...I mean economics?"

[Corydoras]

Is there an "Economics for Dummies?" book? You know..."The Idiots Guide to Survival...I mean economics?"

Sure there's "Economics for Dummies," but I bet it doesn't have much to do with Austrian economics! There's also Investing for Dummies and Trading for Dummies, which might be more useful, but I bet they don't have much about precious metals.

This is the book I tell people I like for beginners, but the advice is totally stereotypical:
Andrew Tobias, "Only Investment Guide You'll Ever Need"
http://search.barnesandnoble.com/Only-Investment-Guide-Youll-Ever-Need/Andrew-Tobias/e/9780156029636/?itm=2

I gave away my copy, so I don't know what he says about precious metals, but I bet Tobias says no on them, because he's so big on index funds. (There are valid reasons for going with index funds, such as that a fund's expenses compound over time. There are other people like James Lowell who disagree.)

I found it useful, decades ago, to start with reading about personal finance, then reading about investing, then reading about economics. Other people would say to go the opposite direction.

[scooter]

This is a good post. I've been trying to give people this kind of message on here for a while now.

Most people here will blindly believe that gold and silver are the only protections against inflation. Actually there are plenty of options that are much better inflation hedges.

Just do your research and spread your money out. Never all in one place, and in fact, never more than 20% in one investment option.

As for Forex, if you are completely new to it I'd suggest staying out of it. Buy stocks in commodity companies and use other measures to play the declining dollar. Forex is one of the most difficult things to trade and you can lose a lot if you make a big bet and the dollar rebounds just a few pips.

[raiha]

thanks Corydorus.

[Corydoras]

Most people here will blindly believe that gold and silver are the only protections against inflation. Actually there are plenty of options that are much better inflation hedges.

Some suggestions of non-PM investments to investigate, please?

[Allen72289]

I'll research the companies that I will eventually invest in however, taxes is what makes me nervous.

Anybody read any good tax books?

[scooter]

Some suggestions of non-PM investments to investigate, please?

Anything commodity-based is going to do well. I prefer to invest in companies that produce or provide service around commodities rather than the commodity itself.

Also, blue chip stocks that have sales all around the world benefit directly from the falling dollar when they convert international sales into US currency.

Basically, all physical assets go up in price when the dollar goes down. Just don't hold much of your investment money in dollars and you'll be fine. Buy good real estate assets, good stocks, and commodity companies (while each is cheap).

Here's a hypothetical example. If I invested $1,000 in gold in 1975 I would have approximately $7,000 today. If I invested $1,000 in Procter & Gamble I would have about $24,000 today.

Essentially... don't pull your money out of your 401ks!

[Corydoras]

I'll research the companies that I will eventually invest in however, taxes is what makes me nervous.

Anybody read any good tax books?


Wikipedia can be helpful. It's good to look at the bottom of the page in "References" to find a link to the actual IRS publication, too.

Here's what Wikipedia has on capital gains. The first one is, surprisingly, the most useful.

http://en.wikipedia.org/wiki/Capital_gains
http://en.wikipedia.org/wiki/Capital_gains_tax#United_States
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

[Sarge]

I agree with the post "that it is taxes that make me worried".

I just got done talking to my broker and we were talking about the AMT. This year it drops to 33,750 Single filing and 45,000 married filing joint for 2008 in 2009. She said people are going to be screaming when they find out and have to pay taxes in 09, if they have not planned and have income in excess of those figures.

She said it is going to take everyone to start complaining.

They hit you with taxes, then hit you with the ATM and at the same time are taking away the tax cuts which is in effect a tax increase. The ATM is going to through millions into owing more taxes.

If you are already having a difficult time, this is going to compound it for many. Be aware all.

[Allen72289]

Wikipedia can be helpful. It's good to look at the bottom of the page in "References" to find a link to the actual IRS publication, too.

Here's what Wikipedia has on capital gains. The first one is, surprisingly, the most useful.

http://en.wikipedia.org/wiki/Capital_gains
http://en.wikipedia.org/wiki/Capital_gains_tax#United_States
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States



Let's say I have X amount of money I want to invest.

How do I explain the money to the IRS?

Thanks

[scooter]

Let's say I have X amount of money I want to invest.

How do I explain the money to the IRS?

Thanks

I'm not sure what you mean here... If you have money to invest, go ahead and do it. You don't have to report anything to the IRS until you sell something.

If you are trading stocks, it is better on your taxes to hold them for more than a year. If you sell them after less than a year, the tax rate is whatever rate your normal income is charged at. If you hold for more than a year, you get the capital gains rate which is 15%.

Dividends are also charged the more benefitial 15% rate. Even lower if your income isn't that high.

As far as I know, if you report your gold trades you have to pay full tax rates. I don't trade gold, but I am pretty sure it can't be considered for capital gains rates like stocks.

If you have sales in a given year, all you have to do is fill out Schedule D with your 1040. Really easy.

By the way, I'm not a tax expert so do your own research or just hire someone.

[Allen72289]

My uncle's an accountant.

Thanks.

[Corydoras]

Let's say I have X amount of money I want to invest.

How do I explain the money to the IRS?


Do you mean, how do you explain how you got the money to invest? You don't have to. You DO, however, need to keep track of the date you bought your investment and how much it cost per share at the time you bought it.

When you sell your investment (at a gain OR loss), you use your form 1040 and the schedules (I think schedule D) to report the amount you made or lost. This involves reporting the date you bought and the date you sold and the number of shares.

Does that answer what you wanted to know?

[Allen72289]

Yep, thanks. :D

Hearing of the new tax hikes encourages me to found my nonprofit asap!

[jaybone]

DYODD = Do your own due diligence = do your OWN research and act accordingly.
Acting on tips from anonymous message board posters is not a good idea.
When something goes against you and you lose most or all of your investment, only YOU will be to blame.