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Post by aztec70 on Apr 24, 2011 8:06:54 GMT -8
Please think again. Owning and lending are not "pretty much the same thing". Again, you show a lack of understanding of investment basics. An investment in debt (bonds or savings accounts to earn interest) or an investment in equity (stock or MLPs for dividends or cap gains) are still investments. Why do you think that bonds and savings acounts are the same thing? Ever seen a secondary market for savings acounts? |
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Post by aztec70 on Apr 24, 2011 8:14:47 GMT -8
LOL I have to guess that when you take money out of a money market fund that currently pays no interest you are so happy that you are getting a tax free distribution!! ;D Where did you get that idea? It appears more and more that you have chosen the wrong profession and you may have only fools for clients.  I get that idea when you say that taking already taxed contibutions out of a Roth is a tax free distribution. As to having fools for clients. I was not aware you were one of my clients. ;D |
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Post by aztec70 on Apr 24, 2011 8:19:51 GMT -8
I'm sorry, but you are so ignorant.  I don't understand what you are trying to prove. To be sure there are differences among the various asset classes -- such as differences in tax treatment -- but that doesn't mean that putting money into one or more of them isn't investing. And just for fun, what is a convertible bond -- the purchase of debt or an investment in equity? Yoda out... Debt. With a clause that if certain conditions happen it will convert to equity. Thus the name. |
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Post by aztecwin on Apr 24, 2011 8:41:45 GMT -8
Again, you show a lack of understanding of investment basics. An investment in debt (bonds or savings accounts to earn interest) or an investment in equity (stock or MLPs for dividends or cap gains) are still investments. Why do you think that bonds and savings acounts are the same thing? Ever seen a secondary market for savings acounts? An investment in a bond or a savings account are both investments in debt. The money in your savings account is repackaged and sold. (lent) Just because you can't see it and the bank has assumed the risk, with government insurance, does not change the characteristics of the investment. I might ask you what is the difference between an "acount" and an "account"? Maybe I am missing some new bank product. |
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Post by Yoda on Apr 24, 2011 8:43:33 GMT -8
I don't understand what you are trying to prove. To be sure there are differences among the various asset classes -- such as differences in tax treatment -- but that doesn't mean that putting money into one or more of them isn't investing. And just for fun, what is a convertible bond -- the purchase of debt or an investment in equity? Yoda out... The diference between saving and investment is risk, Yoda. When you save you should not be taking risk. When you invest you are taking risk. Sorry buddy but you are just flat out wrong. All investments -- including a zero interest investment in a hole in the ground in your back yard (ie: burying your money), carries risk. And suggesting that there is no risk in savings is just silly. Ever hear of interest rate risk? Bond prices fluctuate just like stock prices do -- depending on interest rate fluctuations, the quality of the underlying assets and the perception of risk. If you don't believe me, ask the holders of WAMU bonds, GM bonds, Chrysler bonds, AIG bonds, etc. They are safer, perhaps than stocks in that they get paid first in the event of insolvency. But they are not risk free. If they were, then they would be reward free as well. The risk reward continuum applies to every investment -- be it in debt or equity. Yoda out... |
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Post by aztecwin on Apr 24, 2011 8:46:07 GMT -8
Where did you get that idea? It appears more and more that you have chosen the wrong profession and you may have only fools for clients. I get that idea when you say that taking already taxed contibutions out of a Roth is a tax free distribution. As to having fools for clients. I was not aware you were one of my clients. ;D Do you consider the tax I paid in the money that seeded my Roth when you think of the tax free earnings in that account. Those dividends are tax free forever and as such give you a tremendous leverage if used properly. As to being one of you clients is concerned, I may be a marginal fool, but not a big enough one to be one of your clients. |
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Post by aztecwin on Apr 24, 2011 8:49:49 GMT -8
The diference between saving and investment is risk, Yoda. When you save you should not be taking risk. When you invest you are taking risk. Sorry buddy but you are just flat out wrong. All investments -- including a zero interest investment in a hole in the ground in your back yard (ie: burying your money), carries risk. And suggesting that there is no risk in savings is just silly. Ever hear of interest rate risk? Bond prices fluctuate just like stock prices do -- depending on interest rate fluctuations, the quality of the underlying assets and the perception of risk. If you don't believe me, ask the holders of WAMU bonds, GM bonds, Chrysler bonds, AIG bonds, etc. They are safer, perhaps than stocks in that they get paid first in the event of insolvency. But they are not risk free. If they were, then they would be reward free as well. The risk reward continuum applies to every investment -- be it in debt or equity. Yoda out... Ask GM bondholders about who gets priority claim on assets in Obama's world. Looks like it was his union goon friends and not the bond holders.  However you are right and I would add inflation risk. |
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Post by Yoda on Apr 24, 2011 8:52:45 GMT -8
And just for fun, what is a convertible bond -- the purchase of debt or an investment in equity? Yoda out... Debt. With a clause that if certain conditions happen it will convert to equity. Thus the name. Actually, as I recall, it's usually with the option to convert to equity whether or not certain conditions "happen". Conversion usually isn't something that automatically happens to you. It is something that you chose to do yourself, manually, presumably if conditions are such that it makes perceived economic sense to convert. Meaning, in my view anyway, the answer is really both. Yoda out... |
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Post by Yoda on Apr 24, 2011 8:57:41 GMT -8
Ask GM bondholders about who gets priority claim on assets in Obama's world. Looks like it was his union goon friends and not the bond holders. However you are right and I would add inflation risk. I had a hunch that was coming. The one that is killing my folks right now is the risk that high rate callable bonds will be called when interest rates fall and the company can replace them with lower rate bonds. Kind of sucks because the bondholder can rarely replace the income without incurring considerably greater risk. Yoda out... |
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Post by aztec70 on Apr 24, 2011 9:35:31 GMT -8
Why do you think that bonds and savings acounts are the same thing? Ever seen a secondary market for savings acounts? An investment in a bond or a savings account are both investments in debt. The money in your savings account is repackaged and sold. (lent) Just because you can't see it and the bank has assumed the risk, with government insurance, does not change the characteristics of the investment. I might ask you what is the difference between an "acount" and an "account"? Maybe I am missing some new bank product. Thank you for pointing out my spelling error. Now tell where the secondary market is for savings accounts? The one for bonds is huge. |
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Post by aztec70 on Apr 24, 2011 10:04:25 GMT -8
Debt. With a clause that if certain conditions happen it will convert to equity. Thus the name. Actually, as I recall, it's usually with the option to convert to equity whether or not certain conditions "happen". Conversion usually isn't something that automatically happens to you. It is something that you chose to do yourself, manually, presumably if conditions are such that it makes perceived economic sense to convert. Meaning, in my view anyway, the answer is really both. Yoda out... The thing that happens is the price goes to a point where the bondholder wants to convert. I should not have been so vague. If you are paying a premium over the underlying bond value you could say both. |
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Post by aztec70 on Apr 24, 2011 10:13:13 GMT -8
I get that idea when you say that taking already taxed contibutions out of a Roth is a tax free distribution. As to having fools for clients. I was not aware you were one of my clients. ;D Do you consider the tax I paid in the money that seeded my Roth when you think of the tax free earnings in that account. Those dividends are tax free forever and as such give you a tremendous leverage if used properly. As to being one of you clients is concerned, I may be a marginal fool, but not a big enough one to be one of your clients. I am asking YOU to consider that tax you paid on the money you contribute to the Roth. When you withdraw that money it is not "tax-free", it is money that has already been taxed. What is tax free is any money in the distribution that represents growth of capital, be it interest, dividend, or gain. If there is no growth there is no tax free distribution. It is the return of your already taxed contribution. That's called return of capital. |
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Post by aztec70 on Apr 24, 2011 10:24:34 GMT -8
Ask GM bondholders about who gets priority claim on assets in Obama's world. Looks like it was his union goon friends and not the bond holders. However you are right and I would add inflation risk. I had a hunch that was coming. The one that is killing my folks right now is the risk that high rate callable bonds will be called when interest rates fall and the company can replace them with lower rate bonds. Kind of sucks because the bondholder can rarely replace the income without incurring considerably greater risk. Yoda out... Yoda, your folks were paid a higher coupon rate to accept that risk. |
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Post by aztec70 on Apr 24, 2011 10:45:33 GMT -8
I give much better advice to my clients. I explain to them that investing means owning shares. With ownership comes risk and hopefully rewards. Saving is riskless from a the point of view of capital loss. The risk comes from inflation. When you save you are a lender, when you invest you are an owner. Very different. If you like, I can explain the holes in your knowledge of Roth accounts. Let me know. I believe this might be my post that started this discussion. I am sorry I said investing means owning stock. Bonds should be there as well. Sometimes when you post in haste you leave things out. Notice how I refer to capital loss as being what is riskless. I tell you that there is inflation risk. This is two pronged risk. One, lose of purchasing power, secondly, rising interest rates when yours is fixed, interest rate risk, if you will. I believe I have already covered your point, Yoda. Somehow this got out of order. |
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Post by Yoda on Apr 24, 2011 16:22:46 GMT -8
I had a hunch that was coming. The one that is killing my folks right now is the risk that high rate callable bonds will be called when interest rates fall and the company can replace them with lower rate bonds. Kind of sucks because the bondholder can rarely replace the income without incurring considerably greater risk. Yoda out... Yoda, your folks were paid a higher coupon rate to accept that risk. I understand that. But the point is, the purchase of debt includes risk -- which directly contradicts your point. In my parents case, they wanted a higher rate of return and they had to accept a higher level of risk -- that the bond might be called and the income difficult to replace -- in order to get it. Other than being at different points along the risk/reward continuum, the purchase of debt is just as much an investment as is the purchase of an equity. You accept some level of risk and you get back some level of return. That's pretty basic stuff and I still don't understand what point you are trying to make in arguing otherwise. Or are you just trolling for fun? Yoda out... |
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Post by aztecwin on Apr 24, 2011 19:25:37 GMT -8
An investment in a bond or a savings account are both investments in debt. The money in your savings account is repackaged and sold. (lent) Just because you can't see it and the bank has assumed the risk, with government insurance, does not change the characteristics of the investment. I might ask you what is the difference between an "acount" and an "account"? Maybe I am missing some new bank product. Thank you for pointing out my spelling error. Now tell where the secondary market is for savings accounts? The one for bonds is huge. What happens when your savings that you have lent to the bank are pooled and used to fund mortgages or business loans when those loans are packaged then resold? Who holds your mortgage? Most likely not the person who issued it and it is even more likely that the loan is serviced by another party again. Under our partial reserve banking system it is hard to track fungible dollars. |
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Post by Yoda on Apr 25, 2011 4:16:02 GMT -8
Come to think of it, aren't more than 99% of equity trades computer generated transactions that are turned over in a matter of seconds or minutes? In other words, most equity trades aren't investing either. It is amazing to me the number of people who confuse trading and investing.
Yoda out...
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Post by aztec70 on Apr 25, 2011 7:59:38 GMT -8
Thank you for pointing out my spelling error. Now tell where the secondary market is for savings accounts? The one for bonds is huge. What happens when your savings that you have lent to the bank are pooled and used to fund mortgages or business loans when those loans are packaged then resold? Who holds your mortgage? Most likely not the person who issued it and it is even more likely that the loan is serviced by another party again. Under our partial reserve banking system it is hard to track fungible dollars. I am glad that you agree that when you have saving you are making a loan to the bank. That is a start towards seeing my point that investing is owning and savings is lending. We use the bank, instead of our mattress, to forestall the risk of robbery or fire. Now can we take the next step and see that savings accounts are what we as a society, working through the market and our government, have designed to offer a riskless way to preserve principal as is possible? Now if we are talking about the risk of a meteor striking the Earth and leaving a hole the size of Imperial County all bets are off. Let's think about what savings is for. I tell my clients it is for short term goals or emergency funds. You are saving to buy a house in the next year or two. Tuition is due in six months. Things that you have to have the money. You can take no risk with it. That is what savings is for. Investing is riskier, and long term. You need the longer time frame for the ups and downs to all work out, in the long run, if you will. You also have an ownership position in stocks or bonds. Yes, you could own other things. Some people use real estate. If your investment adviser comes from an insurance background you will see whole life and annuitys in the mix. I came from a background in securitys so I use stocks and bonds, in the main, for reaching long term goals. You would never invest your downpayment in the market for the house you are closing on in 90 days. Too risky. You leave it in the bank. That is what savings is for. I don't think your attenuated example of how banks use the money on deposit to make loans that are then bundled into securitys that can be sold on a secondary market as being the secondary market for savings accounts holds water. Sorry, that is a secondary market for those securitys, not for your savings account. It was creative, though.  BTW, you jumped all over me awhile back when I said money was fungible. I see you have changed your mind. |
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Post by aztec70 on Apr 25, 2011 8:14:46 GMT -8
Yoda, your folks were paid a higher coupon rate to accept that risk. I understand that. But the point is, the purchase of debt includes risk -- which directly contradicts your point. In my parents case, they wanted a higher rate of return and they had to accept a higher level of risk -- that the bond might be called and the income difficult to replace -- in order to get it. Other than being at different points along the risk/reward continuum, the purchase of debt is just as much an investment as is the purchase of an equity. You accept some level of risk and you get back some level of return. That's pretty basic stuff and I still don't understand what point you are trying to make in arguing otherwise. Or are you just trolling for fun? Yoda out... I certainly do troll for fun. aztecwin taught me how to do that. Not in this case, though. Buying a bond through your broker is not the same as opening a savings account. My point is if you want a riskless way to preserve capital you use savings accounts, which puts you in the position of a lender, with very strict terms and guarantees for your principal. If you invest it puts you in the position of an owner. If you buy a bond your principal will fluctuate with the rise and fall of market interest rates. The term and coupon rate will remain the same, but there is no guarantee of the principal until the term ends. Even then that gurantee is only by the company. I see a difference. I teach it to my clients. If you do not see it that okay. No hard feelings from me. |
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Post by aztec70 on Apr 25, 2011 8:20:45 GMT -8
Come to think of it, aren't more than 99% of equity trades computer generated transactions that are turned over in a matter of seconds or minutes? In other words, most equity trades aren't investing either. It is amazing to me the number of people who confuse trading and investing. Yoda out... It is with some trepidation that I venture this comment. I fear that it may start another long thread where we try to define terms adinfinitum. I call traders, speculators. They are certainly not investors. |
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