Cost Basis

This covers the topic of cost basis which is important to understand for tax reasons and to determine your return on your investment. The first part is from Vanguard while the last part is something I got from a person who lives in Tennessee.

Vanguard

Two closely watched gauges of the labor market—the unemployment rate and nonfarm payrolls—registered better-than-expected readings for March, indicating the economic recovery is gaining momentum. By contrast, other reports hinted at signs of weakness. For the week ended April 1, the S&P 500 Index rose 1.4% to 1,332 (for a year-to-date total return—including price change plus dividends—of about 6.4%). The yield of the 10-year U.S. Treasury note decreased 1 basis point to 3.45% (for a year-to-date increase of 15 basis points).

Cost Basis

The term cost basis is used for determining capital gains and losses for tax purposes. It can be different than the cost of an investmenet. Cost basis is the sum of the initial cost as well as any additional return that is reported to the govenmnet such as a dividend. If an investment pays no dividend then cost and cost basis are the same. If a dividend has been paid then cost and cost basis are different. This is particularly important if you own a mutual fund that invests in bonds.

An example, rounding to make the math simple, would be a $100 initial investment that pays a $5 dividend each year. At the end of 5 years, and 5 dividend payments the cost basis is $125 while the initial cost is $100. The actual value of the investment after 5 years is $130 because it grew by $1 more each year.

You made $30 in 5 years or about 6% annually. You paid dividends during these 5 years so that your cost basis is $125 and you have made $5 more than this cost basis. This means that you had a capital gain of $5 in 5 for a return on your capital of about 1%.

The bottom line is if you want to know how much money you made on an investment always take the current value relative to the initial cost.

Tennessee Home Security Sys-tem

1. Go to a secondhand store and buy a pair of men's work boots – size 16 - 18.

2. Place the work boots on your front porch, along with a well used copy of Guns & Ammo Magazine.

3. Put four giant dog dishes next to the boots and maga-zine.

4. Leave a note on your door that reads –

"Bubba - Bertha, Duke, Slim & I went for more ammo and beer. Back in an hour. Don't mess with the pit bulls. They attacked the mailman this morning and messed him up real bad. I don't think Killer took part, but it was hard to tell from all the blood. Anyway, I locked all four of 'em in the house. Better wait outside. Be right back.”

"Cooter"