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3 Things 11-4-24

Thing One



Our 401Ks Are Interested In The Election Too



The following is an excerpt of an article recently published in the Wall Street Journal. It was written by an economist and an investment company CEO. We share it as neither an endorsement for, nor advice against, either of the major parties’ candidates for president. It is an informed, rational, and unemotional perspective on what might happen in one aspect of our lives if tax policy is amended to align with one of the candidate’s platforms - which has a stated goal of raising the corporate tax rate from 21 to 28%. We share it with you in that context and hope you find it worth the consideration:



“…At a 28% federal corporate tax and an average of roughly a 5% state and local tax, the government would snatch away roughly 33 cents of every dollar of profit. This leaves 67 cents to the shareholders. Those include the more than 100 million Americans who own stock directly or through pension and other retirement funds. Every percentage point that Congress and Ms. Harris raise the tax would dilute the value of the stock owned by the rest of us.



Things get even bleaker when one factors in her plan to raise the capital-gains rate. She favors raising the rate to roughly 32% from 23.8%. Add state capital-gains taxes and the rate can easily reach 36%. This is the government taking a second bite out of the corporate apple before the rest of the country has even taken its first. Remember: The value of a share of stock is the present value discounted by the expected after-tax future earnings of the company.



Add it all up and government would snatch at least 50% of nearly every corporation in America under the Harris tax scheme. That sounds an awful lot like socialism. Everyone with stock—not only the Warren Buffetts of the world—and the more than 70 million Americans with 401(k) plans and millions more with other retirement stock holdings would be made poorer.



Companies could find loopholes and deductions to bring the effective corporate rate lower than the statutory rate. But many of those require companies to follow government orders by spending money on green energy and the like. And many of these are effectively back-door taxes: They divert dollars away from companies’ core mission—providing profitable products—and toward unrelated causes.



It is a mathematical certainty that Ms. Harris’s tax scheme will lower the value of stocks a great deal…”




Thing Two




A Long Term, All-Weather Investing Endorsement



Here’s a quote from an August 2020 Wall Street Journal article:



“Stock ownership is increasingly concentrated among a sliver of the population. The top 10% of Americans, by wealth, owned 87% of all stock outstanding in the first quarter, according to data from the Federal Reserve. That share has grown over the past decade, from 82.4% in 2009. The stock market has surged over that period, with the S&P 500 more than quadrupling from its low during the financial crisis in March 2009.”



To elaborate on that final point, we'll add that if you had invested $1,000 in the S&P 500 in March of 2009 (when the stock market was off the rails and in a ditch), it would be worth over $10,000 today in nominal terms. Specifically, the return (before dividends) on the $1,000 investment from the beginning of March 2009 through October 2024 would have been 665%, turning $1,000 into $7,655. Adding the dividends and assuming reinvestment over that 15 years and 7 months would have increased the return to 924%, turning $1,000 into $10,252. The bottom line? Anybody who was invested in the market, as represented by the S&P 500 index, got richer - not just rich people.



Share this quick math and straightforward story with anybody who’s sincerely interested in accumulating wealth. Let them know that there’s nothing they can do about what they’ve missed out on in the last 15 years but they don’t have to keep missing out. And tell them you know someone who can help.



Thing Three



Just A Thought



“Find a voice in a whisper.”― Martin Luther King Jr.

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