thoughts as we finish out this 2nd Week of October 2020-taxes, Coronovirus Aid and Stress Testing...
You will be hearing more about taxes over the next few years: I am laser focused here.
Note how much the blue line, and the gray line below, change over time. These are the two kinds of taxes investors pay on their portfolio: the blue line shows income taxes on your dividend income. The gray line tracks the cost of selling your stocks that have gone up in value. The ROTH IRA is the only way to eliminate taxes.
😲 Why does this matter to you? For EVERY DOLLAR you have in a retirement account…you will pay the highest rates…ordinary income taxes…when you take money out. Tax-advantaged investing…not just tax deferred investing…is the way to reduce your tax bill throughout the years.
With the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, the federal government is spending historic sums of money to battle the economic fallout from COVID-19. Roughly 60% of all federal government expenditures made in 2019, this is what we have spent in the U.S., and abroad.
😲 Why does this matter to you? This spending will put unprecedented pressure on global budgets with the solution being raising taxes. Look at the top graph: tax rates spike during a time of financial crisis.
Look below at the blue line: cash flowed OUT of the stock market as January 2020 negative cash flows surged! You may not have sold, but if other investors did, you might get stuck paying the capital-gains-tax-bill.
😲 Why does this matter to you? This is one of the signals that 9th Inning Investing is in motion: portfolio repositioning rotates money from one asset class to another. When this happens, those who have stayed pat could end up paying capital gains taxes, even if they didn’t sell their shares. This is why I spend so much time working with you on reducing your realized capital gains, between Thanksgiving and New Year’s Eve.
“Should I sell now?” “How long will the pandemic last?” “Will my money run out?” “What happens if there is a second wave and it ends up being worse?” “Is my retirement still secure?” “How will the presidential election affect the economy?” “What’s going to happen next year?” “When is this all going to end?” 😲 Why does this matter to you? Welcome to the “RISK-FIRST” year of the decade! At the expense of stating the painfully obvious, 2020 has been the most confusing year in the stock market since 2009. So much has changed this year and we are left with a whole new set of questions to answer. During times like this, the first rule is to not take un-necessary risks…to not make any “unforced errors.” To get through with the least amount of damage, we need to put risk first and look for new ways to stress-test your portfolio. With my new program, Hidden Levers, we will be able to see if there are changes we need to make to help manage the volatility I expect to continue.
Has anything major changed since we last talked!
Constancy noun con·stan·cy | \ ˈkän(t)-stən(t)-sē
Synonym - Skye Advisors