December Market Update – Tax Harvesting


This is the last market update of 2022. I can’t believe how time has flown. However, it’s been quite a rocky ride that is for sure!

On the Power Hour last week, we talked a little bit about the impact of the midterm elections and the result of that with a Republican led house, and a Democrat controlled Senate.

Republicans will be probably doing some more investigations, Democrats will also be pushing their agenda in the Senate on the Green New Deal. How are markets going to respond?

So far, markets have responded well. There’s a lot of good positive signs that that inflation is tapering off at the moment and corporate earnings are still really strong.

If we look back historically, the next 12 months after a mid-term election, the market has done well. Also, when the Republican have controlled house, the market has done well.

But I also going to want to just put a few cautions.There’s still a lot of uncertainty in the world, and there’s the green New Deal and the war for the control of cryptocurrency.

Now, I hope that history is right, and we have a good market after this midterm, but with all of this, the market could still be a little rocky.

It’s never good to get complacent because of a market uptick or anything else. As soon as you get complacent, that’s when you can get hurt.

Our managers are constantly monitoring the portfolios and making trades and adjustments as needed. They have been able to buy some good companies at a discount.

They’re also doing a lot of tax swaps and tax harvesting right now in the brokerage accounts.

With the volatility this year, there’s companies that have a losses. Even if they still want to hold that position, they might sell to harvest the tax loss that can offset a gain another company now or in the future. Then, they do some repositioning and buy another company that’s very similar to keep that position.

That is something that’s really key, that should be done right now, but it is often overlooked in portfolio management.

So, if you have accounts that are not an IRA, just a brokerage account, and you’re not doing tax management like this, then your returns that showing on your statement are not your actual returns as the balance doesn’t reflect the taxes you owe.

What happens is you almost get handcuffed into a company or a fund, because you have a high capital gains.

Now, there are few main reasons why you’d invest. Either you want to create income from it later, you want it there if you need it, or you plan on passing it to beneficiaries, or some combination.

However, if you have a high capital gain, you’re honestly handcuffed because you could be paying a high capital gains tax when you take that money out.

The way to avoid that is to wait until the stock or fund drops in value which means while you don’t have a high tax, you have lost money in the market. Or you leave it until it goes to your beneficiaries, and they will receive a step up in basis but that means you can’t use it now.

It’s important to be looking at those tax management opportunities right now, once January 1 comes, the opportunity to do any of this for 2022 is gone.

We are happy to take a look at your portfolio and help you with this kind of strategic tax planning as well as helping you to make sure that your portfolio is positioned the right way. Then, if 2023 brings volatility again, you know you will be ok. That your income is income protected and that you are positioned in the right way to take advantage of opportunities avoid some of the dangers ahead, reducing your risk.

Bottom line, don’t be complacent about your portfolio!

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