Financial analysis

Also 1) It would've been tight timewise to sell before school 2) Keeping while at school may have given me reason not to return at XMAS '79

All I had was about $10K so I probably could only have bought a $60K place anyway, and this would have gone up 20% but there is 7% selling fee, so I probably wouldn't have made more than $10k. And there would've been taxes.

I certainly didn't want to buy into Boston, and in O.C I simply didn't have any money and RSJ was dire: hot tub, location, layout...

SO: I don't see anyway to have made much more money via stocks at which I'm just not very skilled or lucky, and in real estate where I simply haven't been able to make a regional commitment.

But the result of so much moving around has been

the development of a very high income career, with attendant tax bracket problems. In '78 I made about $40k so my bracket didn't give me much concern and in '79 I only worked 8 months so the effect was the same. '80 also had a low bracket.

But '81 has been the kickoff year. During the first few months I had little money so no investment problems. By June I had some money so I bought a T-bill with my first $10K. [Next two sentences marked out with X] Since it was the first I don't find it bad to keep it. It is a nice feeling to have some amount of money very secure, while yielding significantly. [Noted to right in red ink] Not with bracket at 63%, that's $800/yr in taxes! [/note] It is good that this is setup at Wells Fargo where it can simply credit my checking/savings. Also I bought it on the last Friday of the second week of

July. Since it is a 26 week certificate it will always mature on a Friday, but do note that after five years this will be on the first week of Jan or July.

But money keeps on mounting. Last October I again found I had over 10K, but instead of getting another T-bill, I bought a Tax savers certificate, which is ideal for me.

But on Decmember 2 I was up to 16K again.

So here I am trying to decide what to do.

GOALS: 1) There are some nice things you just can't rent like houses, cars, boats, summer place in Laguna, etc. For these you need large chunks of cash for down payments.

Implication: I can't see tying up lots of cash, annuity style yet.

2) Keep as much of my unearned income as possible. There is really not much I can do to reduce my earned income tax. I still don't have the desire to own a house yet as 1) housing mkt is slump so prices won't burgeon 2) money is expensive 3) no regional affinity yet.

All I can do now is 1) IRA 2) Business Expense (Apple, etc.) 3) Dental Expenses 4) Calif taxes for 1980 [Noted to left of 1-4] Also interest payments. Buy on margin! [/note] [Noted to right of 1-4] gives me a reason to pay them. Else I'd be reluctant. [/note] I don't feel like doing investment credits since those imply fairly high risk.

So Q'est sera, sera...

Back to unearned income.

[Noted in green ink with green circle around 63%] NO! [/note] Marginally I am in the 63% bracket. For every extra dollar of interest I only get to keep 37 cents! Clearly I must not keep around anymore than the minimum in the T-bill, which I want to keep for safety.

But any other investments I make must be tax favored. (Not how bad income from trader would be here.) There are three ways:

1) Deferred tax annuities. But the problem is that is ties up money for so long, and if you pull it out it hasn't gained much more than if it were always out.

Non-def'd Def'd (1+p/2)(1+p/2) 1-(1+p)(1+p) ------------------ +1 2 1+p+(p*p)/4 1 + p +(p*p)/2

Difference is just (p*p)/4 or at 14% about 0.5% every year. Even consider a case of 5 years at 14%, on 25K pre-tax value is 48,135. At 50% bracket even, post tax value is $36,567, or (35567/25000)(35567/25000) gives a 7.9% rate.