Ask Stacy: Why Aren’t You Buying Stocks? Also: Are Gift Cards Taxable?

Recently, Steve wrote with a two-parter…

Hey Stacy,

First of all I noticed that you haven’t made any recent stock purchases. I like the returns you post in your portfolio but really…just about any stock would give great returns since you bought most of them in the midst of the financial turmoil a couple of years back. What do you like now?

Secondly, I bought a gift card the other day and was surprised to see that I was charged tax. Knowing that the recipient will also pay tax on the exact same money I paid, I would like to know if this was a mistake on the cashier or has my goverment devised yet another way to suck more money out of our pockets?

We should go for a ride the next time I am in Florida for a bike rally…. ol’ school FXR rider.

These are both great questions. Here are your answers, Steve!

Taking stock

When it comes to stock picks, Steve is referring to my personal stock portfolio, which I put up more for accountability than advice.

It’s easy for an investment adviser to act like a great stock picker by continually throwing out suggestions – then in subsequent conversations, conveniently “remembering” only the winners. This is the technique of the vast majority of people offering advice on TV, the web, and one-on-one when you visit people like stockbrokers.

More challenging – and, in my opinion, a heck of a lot more responsible – is to do what I do: Show our readers exactly what I’m doing with my own money.

While I feel Steve’s frustration when he says, “Just about any stock would give great returns since you bought most of them in the midst of the financial turmoil a couple of years back,” I take umbrage at the implication that plunking down a hundred grand in the depths of a worldwide financial meltdown was a no-brainer. It wasn’t. Buying when everyone else is selling isn’t easy.

That being said, Steve’s point is well taken. If the function of my portfolio is even partially to offer investment advice, then it doesn’t help anyone to look at gains that started months or years ago.

Unfortunately, one of the bad side effects of posting one’s personal portfolio rather than continually making suggestions is that stock ideas are only offered when I make changes – something I do infrequently. I’m not buying any stocks now, for a couple of reasons. First and foremost, I’ve got about as much in stocks as I want right now. For other money I have in long-term savings, I’m looking for an investment in another beaten-down asset class that, unlike stocks, has yet to rebound: real estate.

In addition, I think the market is ripe for a pullback.

But that’s not to say I haven’t mentioned stocks since 2009. The most recent purchase I made in my portfolio was Corning, which I bought last August and wrote about in an article called Corning: Glass Half Full? In a more recent article, 28 Ways to Save on Gas You Already Know – And Maybe One You Don’t, posted on Dec. 8, 2010, I suggested that buying shares of oil company ConocoPhillips could help hedge against higher pump prices. At that time – just three months ago – the stock was $64/share. As I write this, it’s more than $80, up 25 percent.

Also keep in mind that individual stocks aren’t really the small investor’s cup of tea to begin with. They should be investing in more diversified (and thus safer) investments like mutual funds and ETFs. I’ve suggested doing that, and more than once. Last July, I wrote an article called Why You Should Buy Stocks and Houses Now. Since then, the Dow is up about 24 percent. Then, on Jan. 21, 2011, I wrote 3 Places to Put Money Now, again suggesting stocks. From that article:

Are stocks still a buy today? Yes. But rather than buy individual stocks like I do, you might want to go for something simpler, like Vanguard’s 500 Index Fund or ETF. These will give you the market’s overall return without the hassle or risk of picking individual stocks.

Bottom line? If individual stock picks are your focus, this probably isn’t the right site for you. If you’d like to learn how to make money over time, however, you’re in the right place. Likewise if you’d like to read stuff by someone who puts their money where their mouth is.

The tax facts

Next question: Should Steve have paid sales tax when he bought a gift card? Answer? No. Like taking money from your pocket and putting in your checking account, a gift cards represents a transfer of money from one place to another, not a sale subject to tax.

It’s easy to see how this happens. A lot of store sales terminals are probably programmed to add sales taxes to every purchase. But in the case of gift cards, that’s bad programming. The state collects sales taxes when the gift card is used to buy stuff, not when you buy a gift card. That store owes Steve an apology and some money.

Now, as for Steve’s last comment, “We should go for a ride the next time I am in Florida for a bike rally…. ol’ school FXR rider.”

Answer: I’m all about it, brother!

For those of you who have no idea what an FXR is, it’s a model of Harley that you can read about here. Steve obviously knew I’m a fellow biker by reading my bio. In fact, it’s a beautiful day today…

Got more money questions? Browse lots more Ask Stacy answers here.

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