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On money

Investors still wary even if stocks are 'on sale'

By HELEN HUNTLEY, Times Staff Writer

© St. Petersburg Times, published March 9, 2003

"How many of you like shopping?" Bob Doll asked as he tried to warm up the crowd gathered in a ballroom at the Grand Hyatt Tampa Bay on a rainy Thursday night last month. "How many of you like to buy things when they're on sale?"

Lots of friendly hands shot up, responding to the president of Merrill Lynch Investment Managers, the giant brokerage firm's money management arm. Then he asked the tough question: How many were buying stock. Maybe five hands went up in the crowd of several hundred.

"We think stocks are on sale," he said. "We think October marked the low in stocks and the high in bonds." Doll ticked off the reasons: The economy is on its way back, corporate earnings are on the upswing, and interest rates should start rebounding in the second half of the year.

He forecasts a 5 to 10 percent return for stocks this year and said long-term Treasury securities are likely to lose money.

But the investors weren't buying it. Nobody asked Doll for stock picks or even his favorite sector. They expressed more interested in municipal bonds.

Doll said stocks will remain a tough sell until the uncertainty over Iraq is settled. He said war already is factored into current stock prices, "but not a bad outcome."

Investors have good reason to be wary. The past three years have been painfully disappointing to most of us who have money in the stock market.

Unfortunately, we aren't any better at predicting the future now than we were three years ago when stocks were about to head south or even 20 years ago when the bull market was kicking off.

Hunkering down with bonds seems like the safest course, but if you own your bonds through a mutual fund or you try to sell an individual bond before maturity, you can lose money, too. And even if you hold your investments to maturity, interest rates are so low that you aren't going to get a very big reward. If you've got enough years left to take a long-term view, it's still important to be diversified.

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Q. I attempted to do my Florida intangibles taxes online, typed in data for about an hour and opted to save the page while I checked the data. Then I found out the Florida system cannot recover the saved session. Why is there no message to this effect online?

Officials at the Florida Department of Revenue say you can indeed save and recover data when you complete your tax return online. The key is a "recovery identification number" you should receive when you start your session. Each page you complete is automatically saved as you go. Even if your computer crashes, you should be able to retrieve the information you have saved using your ID number. If you run into problems in the future, the toll-free number to call is 1-800-352-3671. Choose option 5 to get someone trained to help with online filing.

For those who aren't familiar with the intangible personal property tax, it is an annual tax of $1 per $1,000 of value for stock, bond and mutual fund holdings outside retirement accounts. Bank accounts, insurance products, Florida municipal bonds and U.S. government bonds are not taxed. There's an exemption of $20,000 per person, and you don't have to pay if you owe less than $60.

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Q. My wife and I have combined deferred annuities totaling more than $100,000, which we haven't touched since inception more than a dozen years ago. I keep reading financial adviser ads stating that upon one's death, the federal government will tax them 40 to 70 percent. If this is true, could we gift this money, even if only in part, to our children and avoid the tax burden the money might create? How else might we avoid such a tax bite?

This is a scare tactic aimed at selling you life insurance. When you die, two taxes may come into play, the estate tax and the income tax.

Whether the estate tax is an issue depends on the size of your total estate (including your annuity) and the law in effect the year that you die. As you probably have read, the estate tax is being phased out. As the law currently stands, the tax would be eliminated in 2010 only to be reinstated in 2011. President Bush has proposed eliminating it entirely, and Congress certainly will weigh in on the issue. In the meantime, you needn't even think about it unless your estate is worth more than $1-million.

Whoever withdraws the money from your annuity will have to pay income taxes on the investment earnings. That includes your children. A gift could be of benefit if they are in a lower tax bracket than you are.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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