John Wasik

By John Wasik

(Reuters) – If the president and Congress are serious about income equality and cutting huge breaks for the wealthy, they should raise the capital gains rate.

While the president didn’t mention it by name in his State of the Union speech on January 24, it’s one of the many gorillas in the tax reform room.

There’s no question that the 15 percent rate on capital gains and dividends largely favors super-wealthy taxpayers over wage earners. Just look at Mitt Romney’s tax return. As former Labor Secretary and economist Robert Reich once noted: “It’s a loophole large enough for the super-rich to drive their Ferraris through. About 80 percent of the income of America’s richest 400 comes in the form of capital gains.” (link.reuters.com/gen36s)

According to economist Jared Bernstein, who analyzed Congressional Research Service figures, capital gains and dividends were “the largest single contributor to the growth of inequality from 1996-2006.” (link.reuters.com/hen36s)

Why should those who primarily make money from private equity, financial, business and real estate appreciation and dividends pay more than 50 percent less than wage workers who are subject to the top rate in federal, state, Medicare and Social Security taxes?

By John Wasik

(Reuters) – While Americans might get a little break in their payroll taxes through the end of this year, greater financial relief for workers will be elusive. After the State of the Union speech by President Obama on Tuesday night, it’s clear that the wizard will still be hiding behind the curtain.

The best evidence of this was when President Obama invoked the progressive intent of the proposed Buffett rule to tax millionaires at a minimum 30 percent rate marginal rate – about twice the effective rate that Mitt Romney, the GOP presidential candidate, has paid in recent years.

It was obvious from the antarctic glare of House Majority leader Eric Cantor and the twitchiness of Speaker John Boehner that President Obama had a better chance of launching a mission to Mars in this caustic election year than gaining any ground on progressive tax reforms.

By John Wasik

(Reuters) – I’ve never thought that laziness could be a virtue, but when it comes to investing, it’s often advantageous. You can trade too much and become too pre-occupied with the headlines and business TV shows. It can drive you crazy and you’ll lose lots of money making bad decisions.

Or you can set up a lazy Nano portfolio, which I proposed years ago – and forget about it. Based on my initial plan at MyPlanIQ (link.reuters.com/qus26s), a web-based application to help manage retirement accounts, my hypothetical Nano portfolio returned 7.4 percent in their tactical asset allocation model in 2011.

In contrast, the S&P 500 posted a tiny loss for the year.

I paid so little attention to my Nano last year that I only knew what it returned when MyPlanIQ sent me its independent year-end tally last week. I have no relationship with the site, nor did I ever ask them to monitor the portfolio. They calculated the returns and tweaked the allocations using their own tactical asset algorithm to get better results with fewer funds. While I hold some of the funds in my family’s portfolio, I don’t manage other people’s money. I’m skittish enough managing my own.

By John Wasik

(Reuters) – You’re underwater on your mortgage and falling behind on payments. You may lose your home. Can you negotiate with your lender to reduce your principal?

Increasingly, the answer is yes, although still only in rare cases.

In what could become a national policy to stem foreclosures, principal reduction is a strategy you should pursue if your lender is open to the idea. It could also give a boost to the U.S. home market, which saw a spurt in existing home sales in December. (link.reuters.com/xap26s)

The potential number of homeowners who could be helped by this strategy is huge: About one in five mortgages are currently underwater, representing about $700 billion in negative equity, the Federal Reserve estimates. Many of those homeowners go into “strategic default” and foreclosure because it makes little or no economic sense to pay on a mortgage that’s worth more than their home. Up to 1 million of these homeowners may be allowed to do principal writedowns if state attorneys general reach a settlement with banks over questionable foreclosure practices, said Shaun Donovan, U.S. Housing and Urban Development secretary. (link.reuters.com/vun26s)

By John Wasik

(Reuters) – If you want to be optimistic about investing this year – and there are plenty of reasons to be – you need to understand the tale of two economies.

One narrative is the recovering U.S. economy: Robust corporate profits, increased manufacturing, slightly more hiring and continued global demand. The other story tells of a hobbled euro zone, a possible slowdown in China and the prolonged misery of the U.S. housing market.

Which tale do you choose to believe? I’m loath to forecast which scenario will dominate because both will play out in varying degrees. The euro zone downgrades last week(link.reuters.com/pyw95s) are certainly going to reverberate in the markets, so if you’re over-exposed to European debt and stocks, pare back. In any case, you should be upgrading your portfolio to grab growth and income while reducing risk.

By John Wasik

(Reuters) – Can those celebrity-linked prepaid cards really help the unbanked?

Lately there have been a spate of them, from Kim Kardashian’s to Lil Wayne’s. When it comes to that newest one, the Approved Prepaid MasterCard issued by the Bancorp Bank and endorsed by personal finance personality Suze Orman, who is also an investor in the product, less is not necessarily more. There are better alternatives.

First, a disclosure. I knew Orman well before she became brand-name famous (we’re both from Chicago) and she even wrote a blurb for my book, “Late-Start Investor,” in 1998. She’s generally done some good things for financial consumers.

By John F. Wasik

(Reuters) – For years, one of the more bankable phenomena in finance has been the January effect.

The premise is simple: Institutions and traders sell off stocks the end of the year for tax reasons and portfolio dressing. Then they start buying again in January, often favoring small companies, also known as “small caps.”

With myriad signs that the U.S. economy is in recovery, this may be another good year for the January effect. Even if it isn’t – and I refuse to make predictions for short-term traders – it would be a good idea to add bargain-priced small caps to your core portfolio through index mutual funds or exchange-traded funds (ETFs).

Jan 6 (Reuters) – No matter what theme you adopt in a
market forecast, predictability has always been a bugaboo. Just
ask Bill Gross, the legendary manager of the PIMCO Total Return
bond fund.

Gross’s $244 billion baby saw at least $5 billion in assets
flee in 2011, more than $1.4 billion in the fourth quarter
alone. Relative to the size of his fund, this is a notable vote
of no confidence ().

Investors voted with their money because of Gross’s bet
against U.S. Treasuries last year. Like many of us, he digested
the headlines and became dyspeptic over the Congress defaulting
on its debt, sluggish economy, the S&P credit downgrade and
euro zone debt woes. Yet what actually happened didn’t follow
Gross’s “new normal” script. Instead we got the “old abnormal”
of unpredictability.

Jan 3 (Reuters) – Despite gloomy headlines from Europe over
the past year, a new technology mash-up is emerging that could
spark some exciting ideas for investors.

There is long-term growth in convergent technologies that
integrate the Internet, green transportation, building-based
micro-power plants and power distribution into a collaborative
worldwide grid, according to author and consultant Jeremy
Rifkin, founder of the Foundation on Economic Trends.

It is a development trend that stretches into the next
decade and is worth investing in right now, said Rifkin.