Novel Investor

Compounding investing wisdom...

What Investment Strategy Should You Use?

by Jon

Investment StrategyPeople are constantly on the lookout for the perfect investment strategy.  The Holy Grail of constant profitable returns.  Unfortunately, no strategy is perfect in the sense that it will guarantee returns.  In fact, I’ll argue that only having one strategy limits your ability to invest profitably.

Currently, investment strategies are a popularity contest.  The strategy with the best returns last year or the one most recently written about, tends to get the most attention.  Good for the strategy and book publishers, but is it best for new investors just starting out?  Hardly, because what works for me may not work for you.  Instead, it should come down to your comfort level, knowledge (hopefully), time, and your financial situation. Continue Reading…

Happy Hour: Dow 13,000, Million Mustache March and Shoe Bling

by Jon

It’s Happy hour time again.  TGIF and all that.  So sit back, relax and check out some interesting reads I’ve come across this week.

Dow 13,000

A big psychological milestone was reached on Tuesday when the Dow climbed above 13,000 for the first time since 2008.  Now we just need it to close above 13,000 which might happen today.  Up next 14,000, which we haven’t seen since 2007.  Just a gut feeling, but when that happens the market will be off to the races with the next big bull market.

Million Mustache March

Proof of how screwy our tax system is, the STACHE Act is being pushed by the American Mustache Association as a way to benefit the economy.  So the AMI is asking for a law to be passed that would give up to $250 in tax refunds for Mustached Americans and promoting it with a Mustached March on Washington in April. Continue Reading…

Betterment Review: Simple Investing For Everyone

by Jon

Betterment DashboardLet’s face it, investing is complicated, time-consuming, and just scary sometimes, especially when it’s looked at for the first time and Betterment believes it has the answer to these problems.

The typical brokerage firm can be downright intimidating for new investors and too costly for an experienced investor. A Betterment account eliminates the intimidation, providing easy to use tools at a low-cost, all while maintaining a goal oriented, long-term approach to investing your money. It sounds like the perfect combination for the beginner and seasoned investor. But is it?

What Is Betterment?

Betterment is an investment service aimed at simplifying the process of investing your money. I’d classify it as an alternative brokerage. Like any normal brokerage account, you still invest your money in the stock market. Only Betterment does all the hard work of researching where to invest your money. I don’t know of a discount broker that does anything like it. Continue Reading…

The Payroll Tax Cut: What Are You Doing With Your 2%?

by Jon

Payroll Tax CutLast week both the House and Senate approved the payroll tax extension, sending it on to the president to sign into law.  Which will happen amid a bunch of hoopla and congratulations about how your elected leaders saved your wallets from the plight of emptiness.

The law, as it did last year, will extend the 2% reduction in the payroll tax that funds Social Security through the end of the year.  Which sounds great.  Who doesn’t want more money from their paycheck.

So what’s the point of the tax cut?  The government lets you keep 2% of your income in exchange for you to spend it.  The theory is that spending your 2% will help the economy grow more quickly. Sounds fair enough, except that money is supposed to be put towards retirement.  At least someone’s retirement with the inefficiency of the Social Security System.

The payroll tax cut is a terrible short-term fix that will only cause more problems down the road when the difference has to made up.  Which is the inherent flaw.  I don’t see any logic in spending retirement money before we retire.  But that’s the government in a nutshell. Continue Reading…

Happy Hour: Swimsuit Indicator, Aristocrats and How Did I Get Here Google?

by Jon

It’s happy hour again.  Time to kick back, relax and check out some of the more interesting things that came out this week.

The SI Swimsuit Indicator

Sports Illustrated released its annual swimsuit issue this week, with the big reveal of the cover model on the Late Show with David Letterman.  Wall Street’s need to analyze everything, has found the Sports Illustrated Swimsuit Indicator.  Seriously?  The S&P 500 has performed better with an American on the cover than without 88.2% of the time, with an average return of 14.3%.

The Aristocrats

The royalty of Wall Street and many a portfolio, the Aristocrats list was also released by CNBC this week.  It’s a list of stocks, not people, so nothing to gawk at really.  Unless you are a fan of high quality dividend paying stocks.  You see, an Aristocrat is an S&P 500 stock that has consistently paid and raised its dividend every year for the last 25 years.  It’s a great place to start if you are looking for dividend stocks.

How Did I Get Here Google?

This site gets a few visitors from Google search every month. Continue Reading…

How Tax Brackets Work

by Jon

Tax BracketsYou can’t go through tax season or file your taxes without knowing how tax brackets work. The U.S. has a progressive tax system that does one thing well, it tells you the tax bracket you fall into, but it doesn’t tell you the whole story.

While someone may sit in the 25% federal tax bracket, that doesn’t mean they actually pay that much in taxes. In fact, they pay less than 25% in taxes because of how the tax system works. Let me explain.

Marginal Vs. Effective

The tax bracket you fall into is your marginal tax rate. The marginal tax rate represents the tax you pay on the last dollar you earn. But it’s not the tax rate you pay on every dollar you earn.

To find the tax rate you pay on your total taxable income, you need to find the average tax rate, called your effective tax rate. To do that, you need a bit of math.

How It Works

The best way to explain it is with an example. I’ll be using the 2012 federal tax brackets for a single person as a reference. For this example, assume this single person, let’s call her Sue, has a taxable income of $500,000. Sue’s income is far above average (because I wouldn’t be able to use the entire table below that I labored over for hours). Continue Reading…

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