Tag Archives: investors

Bitcoin to be Taxed

Yesterday, the Internal Revenue Service issued a formal statement declaring Bitcoin property, as opposed to currency, for taxing purposes. An article in CNN Money explains that the IRS has decided payments worth at least $600 (in Bitcoins) will be taxed in the same way as any other property transaction taxed by the agency. This includes any payment with Bitcoin, gains acquired by investing in it. and income from producing Bitcoins on your computer (known as “mining”). Additionally, “If you pay your employees with bitcoins, that would have to go on your staff’s W-2 forms, and they would have to pay federal income tax on it. Paying an independent contractor? They have to put bitcoin payments on their 1099.” Notably, the IRS acknoledges that Bitcoin surely functions like real currency, but its lack of legal tender status means that there is no jurisdiction over it as such.

The IRS, the and United States in this sense, has joined many countries in the attempt to regulate Bitcoin as it becomes increasingly utilized/traded. The United Kingdom, Germany, and Singapore are among other countries that have put forth this effort as well. In the near future, we should expect to see many other countries joining in the attempt to regulate Bitcoin — assuming it continues to grow in relevance as it has been recently.

In fact, a Wall Street Journal article explains the growth in Bitcoin awareness and confidence. Pollster Harris Interactive outlined the thoughts of 2,039 people around the U.S. It found that 48% have heard of Bitcoin, but most of them don’t trust it enough to invest in it. In fact, only 13% said they would choose bitcoin as an investment over gold. Personally, I am surprised even 13% would choose to invest in it over gold; I figured it would be less. Additionally, results indicate a correlation between increased awareness and decreased trust. It seems that the more people learn what it is, the less they trust it enough to invest in it (hypothetically, of course). Interestingly, respondents in western states proved to be more likely to have heard about Bitcoin, but only 7% of those who knew about it said they would chose it over gold when investing.

Thus, the increase in Bitcoin’s popularity is eminent, though people’s trust in it is still very questionable. However, in pure numbers, it is gaining ground quickly. This decision by the IRS is not necessarily negative for Bitcoin-ers. In fact, I think it’s a positive step for those who want to see it grow in the future. A government attempt to regulate it means that it is being acknowledged as a significant “property” and that the US is taking notice of the increased popularity of Bitcoin. As of now, I find it almost impossible to convince me to invest in it, but all the power to those who do. Regulation may not be an investor’s idea of a positive step, especially when their investments are being taxed, but this move by the IRS is important as it creates a form of acceptance and acknowledgement (as property, though).

(Revised) Time to Buy

Anyone with a basic understanding of the economy knows that now is a good time to buy a house. Mainly because interest rates and prices are low – and rising. The longer people wait, the more they will have to pay for their home, and with higher interest rates on mortgage payments. But there is a clear challenge for home-buyers right now: Wall Street investors looking to “Flip This House”. Big businesses are also taking advantage of low housing prices – and are capitalizing on their investments by buying cheap homes, renovating them, and selling them at a higher price.

This isn’t bad for anyone, really, except for unlucky home buyers that are caught in bidding wars with these investors. On one side, the seller gets to sell his property, the buyer makes a profit from “flipping” the house, and surrounding home-prices consequently rise as the standard for homes in the area increases. However, for average home buyers caught in a bidding war with big investors, it is pretty much a lose-lose as they stand no chance against their bidding capacity. Considering their hefty wallets, it is best for home buyers to simply back-off. So the competition to find houses is no longer a matter of outbidding someone else looking for a home – it’s now a matter of hoping that no big investors (who pay mostly in cash) notice your future-house. Despite this challenge to home buyers, though, now is still the time to buy.

In 2012, big investors bought about 140,000 houses in the United States (3% of sales). But this small percentage obscures the real impact on individual markets. For example, in July of 2012 corporate buyers accounted for 25% of house purchases in Atlanta, and 20% in Tampa. Though they are not investing all over the country, their concentration in real estate-desirable locations has a large impact in those particular areas. Other areas of concentration include Florida, Phoenix, Las Vegas and California’s Central Valley. Not only are these investors making it more difficult for home buyers, but they are also slowly driving up home prices.

Of course, this is something the economy wants. So comes in the need to purchase homes now.  A report from the National Association of Realtors shows that 5.1 million houses were sold in 2013, a 9.2% increase from 2012 and a 20% increase from 2011. In 2013, the median price of a house sold was $197,100 – an 11.4% increase from 2012. Increasing prices, lower unemployment, a decrease in foreclosures, an increase in demand, and low mortgage rates (though rising), have fueled the growth in the housing market.

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The Home Price Index of the Federal Housing Finance Agency shows a 14% increase in home prices from 2012 to 2013. Though this is an excellent sign for the economy, it is a call-to-action for home-buyers. And not only because of prices: today’s 30-year fixed mortgage rates are far cheaper than they have been in 40 of the past 42 years (at 4.57% last week). But again, this rate is more than a percentage point higher than in January – mortgage rates are on the rise.

Thus, as we look at the recovering economy with positivity, we also see its impact on home-buyers. Although corporate investors are making it more difficult for some in real estate, there is no doubt that now is the time to buy.

Now the time to invest?

After an historical year for the stock market in 2013, the market has been pretty flat to start off 2014. Yet, many smaller investors have started to get back into stock trading early this year. Is now the right time to be entering into the game, though? It may or may not be, and I will examine the possibilities of both sides of this question. Let’s hope for the sake of investors and the country as a whole that the answer is yes. There are certainly reasons to believe that the market will be fine, and I believe that although there is some risk in entering the trading game right now, in general it is a fine time to do so.

First of all, let’s take a look at the reasoning not to start putting your money into stocks at the moment. The main reason is simply the timing of how the market has been doing. “The risk is that investors are barreling into stocks at the tail end of a historic rally. In January, the S&P 500 declined 3.6%, the largest one-month drop since May 2012. It has risen 171% since its March 2009 low. The index has gained 3% in February.” As I briefly mentioned, the market had an incredible year in 2013, so to start investing when the market as a whole may well have already reached its peak is definitely a scary thought. The last thing you want to do is buy now and then have to sell later on when stock prices have fallen. Buying high and selling low is never a good idea. This is just what many small investors have experienced over the past seven years. However, I’m not so convinced that the market has reached its peak just yet. And apparently, many others are not completely convinced either. “At E*Trade, daily trades were up 27% from a year earlier. At TD Ameritrade and Schwab, the increases were 28% and 17%, respectively.

A bright spot to start off the year is the success that 2013 initial public offerings have had thus far in 2014. Overall, companies that went public last year are up 2.3% median year-to-date, which clearly tops the -0.7% that the S&P 500 has seen thus far this year and the -2.9% that the Dow Jones has experienced over the same time period. Some companies like Kindred Biosciences Inc. and BioAmber are even up 92% and 86% year-to-date, respectively. Obviously, it is not every company that has numbers like this, but it is certainly a good sign when at least some do. And while investing in IPOs is not always the safest bet, it can certainly pay off. Maybe some of the investors getting back into the swing of things will look toward IPOs this year as they are currently beating the market indexes thus far.

My final thought is that while the market did historically well last year, and has started off relatively flat this year, who is to say that it can’t make another run similar to the one it made in 2013? Or at least continue to do somewhat well. January was obviously tough on investors, but so far in February the market has fought back to almost pull even for the year. As with any time you choose to invest, pick your stocks wisely and everything should be alright. While I wouldn’t be one to put all of my money into stocks right now, I don’t think it would hurt to invest some of it, even at a time like this.