Small Investor Must Wait and See
QUESTION: I’m a newcomer to the stock market and, frankly, I don’t know how long I’ll stay in after this Ivan Boesky mess. What has me puzzled is that the experts all seem to be saying that small stockholders like me will come back into the market now. But I feel like just the opposite will happen. I know that I for one am thinking about getting out. What am I missing?--J. T.
ANSWER: Actually, analysts are divided in their opinions on how small investors will react to the government’s insider trading investigation in general and to last month’s charges against takeover arbitrageur Ivan F. Boesky in particular.
Some predict that individuals, after fleeing from the market in recent years, will now return because the government’s probe will clean up many of the abuses and make the market a fairer place for small and large investors alike.
The analysts in this corner also predict that the stock market will now face its closest scrutiny since the 1930s, when the Securities and Exchange Commission was created, and give powerful new tools to that federal agency. Again, the thinking goes, the small investor would be a big beneficiary of new government weapons to crack down on white-collar crime on Wall Street.
In the opposite corner are those who say the disclosures of large-scale abuse on Wall Street will only heighten the flight of small investors from the market. When this is over, some predict, small investors will own only 10% or 20% of the stock, down from about 25% today.
Their thinking is that small shareholders are now so cynical about the fairness of the stock market that they will never believe the abusers have all been ousted from the market. These analysts predict that small investors will quickly begin redirecting their cash into investments they consider much fairer and safer: Treasury bills and money funds, for example.
It is too soon to tell which camp is right. In the meantime, only you can decide if you feel comfortable keeping your money in the stock market.
Q: I keep reading that taxpayers must fill out new W-4 withholding forms before tax reform takes effect. But every time I ask my company personnel department for the new form, I’m told the forms haven’t arrived yet. How are we all supposed to fill out new forms by the first of the year if it is already December and they aren’t available?--L. D.
A: You’re right that every taxpayer must fill out a new W-4 form. But the deadline is Oct. 1, 1987, not Dec. 31 of this year.
The new withholding forms--known to most people as W-4s but officially called Employees Withholding Allowance Certificates--are scheduled to begin arriving in employers’ personnel offices about the middle of this month. They will reflect the elimination of many tax writeoffs in the new tax code, breaks that entitled millions of taxpayers to legitimately reduce the amount of money withheld from their paychecks for federal taxes.
Once these forms do arrive--and it is likely that employers will notify workers once the forms are in--you should fill them out as soon as possible if you don’t want to risk having way too much or too little withheld from your paychecks. If you wait until the deadline, most of the tax year will already have passed, and it might be too late to make up for large differences between what you should have paid in throughout the year and what you actually paid.
Taxpayers who miss the Oct. 1 deadline will be at their employers’ mercy. Employers have been instructed to automatically change any late taxpayer’s W-4 to the maximum withholding allowed. That means that single taxpayers would get only one exemption and married taxpayers would be allowed two--even if the taxpayers can show that they are legitimately entitled to claim more because deductions they still can take next year will lessen their tax burden.
As you will see when you go to fill out the form, it hasn’t been simplified. It will be four pages, double the two-page form you last filled out. And many accountants who have gotten a glimpse at it say it is extremely difficult to figure out.
To help taxpayers who don’t have a tax preparer to do it for them, the IRS will issue an explanatory publication in mid-December. The publication, “Is My Withholding Correct?” will be available at IRS offices.
