Wall Street’s degree of prickliness is closely correlated with the outrageousness of the fees charged.

This Week/Dec. 17-23

GIVE AWAY APPRECIATED ASSETS. By donating stocks with unrealized capital gains, you can help a charity, avoid capital gains taxes and get an immediate tax deduction. Looking for more retirement income? Use appreciated assets to buy a charitable gift annuity. Over age 70½? You could save on taxes by donating part of your IRA’s required minimum distribution.

Earlier updates »

Money Guide

Everything you need to be smarter about money—all in one place.

Start Here

Dilution

AS CORPORATIONS ISSUE MORE SHARES and as new companies emerge, existing shareholders see their claim on the economy’s profits diluted. Indeed, the economy’s fastest growth often occurs among privately held companies. Ordinary stock market investors can’t buy into these private companies until they have grown large enough to be taken public in an IPO, or initial public offering. The historical dilution suffered by existing shareholders has been estimated at around two percentage points a year by money managers Robert Arnott and William Bernstein ("Earnings Growth: The Two Percent Dilution," Financial Analysts Journal, September/October 2003, Vol. 59, No. 5). In other words, if the economy grows at a nominal 5% a year, total corporate profits across the economy would likely also grow at 5%—but earnings on a per-share basis might grow at just 3%. If earnings per share trail the economy’s growth rate, share-price appreciation is also likely to lag, unless there’s an offsetting rise in the stock market’s price-earnings ratio. Some good news: Dilution has all but stopped over the past decade, as corporations have used their spare cash to buy back substantial amounts of their own stock. One possible downside: It could be that corporations have been neglecting capital improvements and eventually they'll need to start using their excess cash for major capital spending, at which point dilution could return with a vengeance. Could you compensate by investing in faster-growing companies? For instance, would it make sense to invest in IPOs? Even though companies sold through IPOs are often growing fast, they typically prove to be disappointing investments. Why? Fast growth alone doesn’t make for a good investment. It also matters what price you pay for that growth. That brings us to one of investing’s most counterintuitive notions: Often, slower-growing companies and slower-growing countries turn out to be better stock market investments—because they can be bought at more reasonable valuations. Next: Price-Earnings Ratios Previous: Falling Taxes and Rising Margins Blog: Bought and Paid For
Read more »

Latest Blog Posts

Easy Money

WALL STREET MAY NOT BE PAVED with gold, but sometimes it sure feels that way, thanks to spectacular winners like Amazon’s stock, Apple’s shares and Bitcoin. The reality: Most investments turn out to be mediocre or worse. Want to notch great long-run gains? Forget trying to pick the winners and instead focus on diversifying broadly. I explain why in my latest article for Creative Planning, where I sit on the advisory board and investment committee.

Read more »

Worse Than Marxism?

IF YOU’RE WORRIED THAT INDEXING threatens the smooth functioning of the stock market, it’s helpful to spend an hour chatting over coffee with Charles Ellis—which is what I did last week when I was in New Haven, Connecticut. Ellis is one of indexing’s most eloquent advocates, including in his bestselling book Winning the Loser’s Game and in his latest tome, The Index Revolution.
Charley dismisses the idea that index funds are distorting the market—and scoffs at the idea that active management is headed for extinction.

Read more »

Salt in the Wound

THE TAX LAWS SEVERELY RESTRICT deductions for losses claimed by individuals whose homes, household goods and other properties suffer damage or are destroyed due to events that, in IRS lingo, are “sudden, unexpected, or unusual.”
In many cases, the allowable write-offs turn out to be shockingly smaller than anticipated. Furthermore, those with high incomes and low losses will find they can’t claim any deductions. What follows are answers to some often-asked questions.
What are the usual restrictions on writing off casualty losses?

Read more »

Blog archive »

Follow Us

Money Guide

Everything you need to be smarter about money—all in one place.

Start Here

Dilution

AS CORPORATIONS ISSUE MORE SHARES and as new companies emerge, existing shareholders see their claim on the economy’s profits diluted. Indeed, the economy’s fastest growth often occurs among privately held companies. Ordinary stock market investors can’t buy into these private companies until they have grown large enough to be taken public in an IPO, or initial public offering. The historical dilution suffered by existing shareholders has been estimated at around two percentage points a year by money managers Robert Arnott and William Bernstein ("Earnings Growth: The Two Percent Dilution," Financial Analysts Journal, September/October 2003, Vol. 59, No. 5). In other words, if the economy grows at a nominal 5% a year, total corporate profits across the economy would likely also grow at 5%—but earnings on a per-share basis might grow at just 3%. If earnings per share trail the economy’s growth rate, share-price appreciation is also likely to lag, unless there’s an offsetting rise in the stock market’s price-earnings ratio. Some good news: Dilution has all but stopped over the past decade, as corporations have used their spare cash to buy back substantial amounts of their own stock. One possible downside: It could be that corporations have been neglecting capital improvements and eventually they'll need to start using their excess cash for major capital spending, at which point dilution could return with a vengeance. Could you compensate by investing in faster-growing companies? For instance, would it make sense to invest in IPOs? Even though companies sold through IPOs are often growing fast, they typically prove to be disappointing investments. Why? Fast growth alone doesn’t make for a good investment. It also matters what price you pay for that growth. That brings us to one of investing’s most counterintuitive notions: Often, slower-growing companies and slower-growing countries turn out to be better stock market investments—because they can be bought at more reasonable valuations. Next: Price-Earnings Ratios Previous: Falling Taxes and Rising Margins Blog: Bought and Paid For
Read more »

Our Free Newsletter

Timely Tale

IMAGINE AN IDEALIZED CHART that summarizes our finances over the course of our lives. What would the chart look like? Picture these five lines:

Our nest egg grows, slowly at first and then ever faster, hitting a peak of around 12 times our final salary when we retire.
Our portfolio in our 20s stands at perhaps 90% or even 100% stocks. We dial down our allocation in the years that follow, especially during our final decade in the workforce,

Read More »

Follow Us

Jonathan Clements

About Jonathan

Jonathan Clements is the founder and editor of HumbleDollar. He spent almost two decades at The Wall Street Journal, where he was the personal finance columnist. His latest book: How to Think About Money.

Full bio »