Joe Devney: ‘Your reader Robert Johnson apparently sees the estate tax as a burden on people like him, who worked hard for his fortune and helped others in the process by creating jobs. I admire Mr. Johnson’s success, but I want to point out that the estate tax doesn’t affect him or anybody else who earned their money on their own, either by hard work or by savvy investing. A repeal of the estate tax is a gift to the children of the wealthy, who by definition did not work for their inheritance. And even with the estate tax in its present form, the heirs still receive large fortunes after taxes.’

Stephen Mason: ‘Instead of worrying about what the estate tax rate and exemption amount should be, why don’t we just treat inheritance as what it really is, INCOME for those who receive it. Tax the recipients, not the estate itself. If a millionaire wants his fortune divided among 100 or so needy families, than those families will pay little or no tax on the windfall, since their marginal rates are low. If a millionaire wants his estate given in whole to a wealthy nephew, so be it, but the nephew will have to pay a higher tax rate on his inheritance.’


Duncan Smith: ‘You write: ‘Or stick with a few funds that specifically aim for ‘value’ situations – but really great values are not so easy for them to find, either.’ Vanguard has index funds that contain just large– or small-cap growth or just large– or small-cap value stocks. So that would be one way to avoid high-priced growth stocks while sticking with indexing (assuming that their formulas for what is ‘value’ are accurate).’

Eric Batson: ‘Of course, you could try Vanguard’s Value Index Fund, but even this has a P/E of 26.3 (yuck).’

Steve: ‘You recently quoted Dick Davis saying: ‘If the big gains of the ’90s are not going to be repeated anytime soon and if Warren Buffet is right in his forecast of modest 7 to 8% gains, on average, over the next decade, then the attempt to do better than the over-all market via actively managed money may make more sense.’ Then in a follow-up, you said you disagreed – but didn’t explain why.’

☞ If actively-managed funds have the skill to beat the market (and by more than enough to offset their higher costs and tax consequences) – and if you have the skill to foretell which ones will and won’t – then why wouldn’t you always want to beat the market, in good times and bad? The truth is that very few actively-managed funds are able to overcome the drag of their higher costs – and very few of us can figure out in advance which those few will be.

Diane Anderson: ‘I disagree with your advice that everyone should continue to invest in index funds. Go back and re-read Bogle’s February 14 speech that you told us about earlier this year because he’s absolutely right. The only way for the stock market to go up is if P/Es go higher or earnings improve. But if an index fund has a P/E of 30, how much higher can it go? Earnings could increase, but are they real or just pro forma? Companies don’t pay dividends anymore, which used to be an indicator that the earnings were really there.’

Good point. What I’ve tried to say is that for that portion of your money you’ve decided to put in the stock market, index funds generally make the best sense, because the ‘jockeys’ are so light.

‘I’m planning on sitting out the stock market for the next 10 years [Diane continues]. Most of my money is in TIPS. For excitement, I watch the yield curve and prices at‘s U.S. Treasuries page. I’m a tax lawyer and CPA, but I trust the government’s CPI calculations more than I trust corporate financial statements.

‘Barron’s recently had a cover story that P/Es are high for the market as a whole. Why take a chance on the stock market, when you can get 3% + inflation and know the government will pay you back? You might even get a capital gain if TIPS become more popular and the ‘real interest’ percentage goes down.’

☞’ I, too, am a fan of TIPS. Maybe the biggest problem with trying to time the market, getting out here and then back in when even more air has gone out of it – apart, of course, from the problem that this is just so hard to do – is that you will forget to get back in, and perhaps get out of the habit of investing in stocks at all. For some people, especially young people, it may be better just to keep investing that $100 a month or $1,000 a month or whatever, knowing that if the Dow hits 4,000, say, as it certainly, conceivably, could, they’ll be adding lots of new shares on the way down, and lots more on the way – almost inevitably, eventually – back up. Even collecting a few dividends along the way!

I think the market is in for continued rough sledding. But (leaving aside the fact that I am usually wrong in such predictions) with any luck, many years from now, it will barely make a difference.


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