Bogle: Time for speculators to pay fair tax share
- Our tax code gives preferential treatment to unearned as compared to earned income. Of course, the basis for this inequity is the yarn that it encourages investment. In fact, demand is what creates the opportunity and incentive for investment. If there is a perceived opportunity to make a profit, businesses and individuals will invest.
- A transfer tax on trading would reduce the incessant gambling that occurs in the markets. Part of what has made trading so commonplace is the reduced cost of trading. It used to be that investors would avoid excess trading in order to avoid transaction costs. Now, trading is so inexpensive, that it can be done for the slightest perceived gain. Programmed trading is designed to exploit every cost inefficiency. Unless we do something like Bogle's suggestion, excessive volatility is here to stay.
- Investing is not a short-term process. If you're thinking you're going to make a return without a long wait, expect to be rudely awakened.
Pull up any chart of a stock's performance, and you will see both ups and downs even when the end point is much higher than the beginning point. Investments rarely go in a straight line. Volatility and inconsistency are the norm – not the exception. To expect otherwise is sheer folly, which is why it's so ironic that we're disappointed when the market makes periodic “adjustments.”
At this time of year, we are subjected to a seemingly endless barrage of prognostications by economists, market gurus, and other so-called experts. “What will the markets do in the coming year?”
If an “expert” says the market will go up by eleven percent – a fairly conservative historical average that has been noted to be the safest “bet' when making a market prediction – what do we do with that? Go all in?
A review of past market predictions and the resulting reality would quickly dissuade you of that notion. Market predictions are notoriously unreliable, not to mention that you can always find different experts who will provide polar opposite predictions.
The magic formula to investing success is the recognition that there is no magic formula. It takes a well-reasoned asset allocation, disciplined rebalancing, and a long-term focus to achieve your investment goals.