Common Investor Mistakes and Other Investing Insights

Posted on July 5, 2014 |

In the second part of our interview with John Bogle, he discusses how investors commonly put too much emphasis on past performance. Plus, he offers his views on high-frequency trading.

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The Danger of Getting Out of Stocks During Bear Markets

Posted on May 13, 2014 | AAII Journal,

One of the biggest risks to investors’ net worth is the portfolio decisions they make.

Failing to adhere to an appropriate long-term strategy has a significant damaging impact on wealth. Since wealth is generated from the compounding of returns, actions that severely reduce an investor’s portfolio balance can have a long-term impact.

A common dangerous action is panicking and pulling out of stocks during a bear market. Such an action limits the immediate damage to a portfolio, but can cause an investor to miss out on the big rebound that follows a large drop by not jumping back into stocks soon enough. Even being out of the market for just one or two years can cause a considerable amount of wealth to be forfeited.

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Making Sense of Master Limited Partnership Tax Rules

Posted on December 18, 2012 |

The unique structure of MLPs gives them tax advantages, but also makes them more complex. Find out how distributions and gains are taxed.

So you’ve finally bought some shares in a master limited partnership (MLP) after hearing everyone rave about this equity investment that gives you a high yield, pays out cash every quarter and has tax advantages.

A couple of quarters go by, your investment pays off as promised, and you’re a happy camper. Then tax season rolls around and instead of the familiar Form 1099, a new form called a Schedule K-1 (Form 1065) shows up in the mail, with numerous boxes labeled with different types of income and deductions. What’s going on? What are you supposed to do with this?

For those who are new to them, the first thing to understand is that an MLP is simply a publicly traded partnership (PTP). (Not all PTPs are MLPs, however; a number of PTPs are simply commodity pools.) By buying shares, technically referred to as “units,” in an MLP, you become a partner (or a “unitholder”) in this very large partnership. As a partner rather than a corporate shareholder, you enter a whole new world of taxation. Partnership taxation is what makes MLPs a tax-advantaged investment, but it also makes them more complex than many other investments.

As a partnership, an MLP is not considered to be a separate entity for tax purposes the way a corporation is, but rather is a pass-through entity—sort of an agglomeration of all its partners. An MLP does not pay corporate tax; instead, all the things that go into calculating tax—income, deductions, gain, losses and credits—are divided up among the unitholders as if they had earned the income themselves. Part III of the K-1 tells you your total share of each of these items.

What about the distributions? Do you pay tax on them as well? You might think so, since the quarterly cash distributions look a lot like dividends; however, MLP distributions are not dividends, but quite a different creature. When you fill out your tax return, the only thing you have to worry about paying tax on is your share of net partnership income. The portion of the distribution that is equal to net income is covered by that tax payment.

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Buffett Valuation Spreadsheet

Posted on April 18, 2012 |

Based on the book “Buffettology,” this spreadsheet quantitatively applies Warren Buffett’s valuation techniques.

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AAII Download Library

Posted on March 8, 2012 |

Freeware, shareware, demos and fully running software programs that are designed to make you a smarter and more informed investor.

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On-Line Discount Broker Survey

Posted on January 11, 2012 |

What discount brokerage firm do you use for placing trades?

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useful investment guides and tips

Posted on November 17, 2011 |

Guide to Direct Purchase and Dividend Reinvestment Plans
Purchase stock without commissions through company-sponsored DRP plans and often at below-market prices.

Guide to ETFs
Check out AAII’s complete listing of all exchange-traded funds, plus a guide to how they work.

Investment Information Guide
Quick access to information and resources that investors are most likely to need.

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