From The Tax Foundation, January 27, 2012:

Lost in the intense scrutiny of the 15 percent tax rate that Mitt Romney paid on his capital gains and dividend income is the fact that capital gains and dividend taxes are a second layer of tax on corporate profits. In other words, before a company distributes $1 of profits to its shareholders, it must pay the 35 percent federal income tax on that profit. Individual shareholders, then, must pay the 15 percent personal tax rate on that dividend income.  

When both of these taxes are added together, along with state-level taxes, the U.S. currently has the fourth-highest overall tax rate on dividend income among the leading economies at 52.1 percent, according to the OECD. As the table below indicates, this is actually an improvement over 10 years ago when the U.S. had the second-highest dividend rate at 67.3 percent. The improvement is the result of the Bush-era tax cuts that lowered the tax rate on dividends from 39.6 percent – equal to the top individual tax rate in 2000 – to 15 percent, equal to the tax rate on capital gains.

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From The Economist, "Fleecing the flock" January 27, 2012 (full story)

Swindling people who trust you is more prevalent than you might think

MISTRUST of mainstream finance is all the rage. But lean economic times also make get-rich-quick schemes more tempting, and desperation breeds gullibility. As investors in Bernie Madoff's funds found out to their cost, frauds are more prone to exposure in a weak economy—when it becomes clear who has been swimming naked. The FBI is currently probing 1,000 cases of investment fraud, more than double the number in 2008. Meanwhile America's Securities and Exchange Commission filed more than twice as many Ponzi cases in 2010 as in 2008.

Quarterly Equity Mutual Fund Flows, January 2008 – September 2011
Industry vs. DFA Relative to the S&P 500 Index performance

The asset class mutual funds of Dimensional Fund Advisors (DFA) are available only to investors of approved investment advisors. The discipline and long-term focus of these advisors and their clients are evident in this graphic. Old-school Wall Street continues to promote emotion-based, short-term speculation as long-term investing, and millions of advisors and investors blindly follow its lead like lemmings off a cliff. For the enlightened few, there is a better way.

JT

For illustration purposes only. Industry net new cash flow data for US-domiciled equity funds provided by Investment Company Institute ©2011. Quarterly cash flows are estimates that are adjusted to represent industry totals, based on reporting covering 95% of industry assets. Dimensional's figures are based on net new cash from financial advisors in US-domiciled funds. Industry and Dimensional data reflect investment in US and international equity markets and do not include funds of funds. S&P 500 Index performance is based on monthly returns data. The S&P data are provided by Standard & Poor's Index Services Group. The S&P 500 includes 500 US stocks chosen for market size. Past performance is no guarantee of future results.

The private equity business has taken a pounding in the mainstream press, from both sides of the political spectrum, because of Mitt Romney's history with Bain Capital. The degree of misinformation, biased reporting, and outright ignorance on this topic does not surprise us–most of what we read on economics, finance, and investments in the mainstream press (and now the blogosphere) is shamefully shallow and devoid of facts–so it's nice to come across an article worth a read. Steve Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, has written such an article in The American this month.

We're not endorsing private equity as an investment due to liquidity, risk, cost, and other factors, and we believe a globally diversified asset class portfolio of public securities is a better choice for long-term investors. In fact, it should be pointed out that Kaplan's statement that "On average, every dollar invested in a private equity fund delivered at least 20 percent more than a dollar invested in the S&P 500" isn't that impressive when one considers that an index of small value stocks* delivered 35% more return than the S&P 500 over the past 84 years.

JT

*DFA US Small Value index, 13.0%; S&P 500 9.6%;1928-11/2011. Source: Dimensional Fund Advisors