The Daily Dow
Friday, August 8, 1997
by Robert Sheard

LEXINGTON, KY. (August 8, 1997) -- For long-term investors, the recent tax reforms are a decided boon. When one factors in the amazing power of compounded growth, the difference between a 28% tax rate and the new rate of 20% can be phenomenal.

For example, if we assume a 20% pre-tax growth rate, the old after-tax return would be 14.4%. Under the new tax rate, however, the after-tax return is only reduced to 16%. Big deal, right? What's 1.6% worth anyway?

Well, in fact it's worth quite a lot over 30 years. Starting with $25,000 at the old capital gains rate, after 30 years your portfolio would have grown to $1.41 million. But at the new rate, the same original investment grows to $2.15 million.

Of course, the important change in the tax rates involves a longer holding period, now 18 months instead of 12 months. Recently I was asked how one might set up a retirement portfolio in order to take advantage of the new tax rates but also provide a constant income stream to live on.

I think within the context of the Dow approach, one of the best plans may be to run two or three staggered Dow portfolios, every six or nine months. That would afford you the opportunity to leave the stocks invested for the full 18 months to get the lower tax rates for all investors. In addition, you would have an opportunity to withdraw needed living expenses every six or nine months without having to withdraw funds before a regular portfolio update.

One thing to keep in mind with multiple Dow portfolios is the likelihood that you'll have the same stocks in more than one portfolio. It's important to keep track of purchase dates and share amounts so that you can instruct your broker to sell the specific shares you want sold. That way you can be sure you're selling the shares that you've held the full 18 months.

Have a Foolish weekend and keep in mind that despite all the hype on television about the market's "Wild Ride," even a drop of 1,000 Dow points would still be a correction of just 12% from yesterday's close. A couple hundred points either way is chump change with the Dow around 8000.

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________

Stock  Change   Last
--------------------
T    +   3/16  40.44
GM   -1  5/16  62.75
CHV  -   5/16  77.69
MMM  -1  1/8   94.81

           Day   Month    Year
        FOOL-4   -0.60%   3.17%   9.27%
        DJIA     -1.91%  -2.33%  24.55%
        S&P 500  -1.86%  -2.18%  26.03%
        NASDAQ   -1.58%   0.30%  23.82%

    Rec'd   #  Security     In At       Now    Change

   1/2/97  153 Chevron       65.00     77.69    19.52%
   1/2/97  120 3M            83.00     94.81    14.23%
   1/2/97  179 Gen. Motor    55.75     62.75    12.56%
   1/2/97  479 AT&T          41.75     40.44    -3.14%


    Rec'd   #  Security     In At     Value    Change

   1/2/97  153 Chevron     9945.00  11886.19  $1941.19
   1/2/97  120 3M          9960.00  11377.50  $1417.50
   1/2/97  179 Gen. Motor  9979.25  11232.25  $1253.00
   1/2/97  479 AT&T       19998.25  19369.56  -$628.69


                             CASH    $767.60
                            TOTAL  $54633.10