News & INSIGHTS

Patrick’s Planning Post

Has the market volatility got you spooked? Are you having trouble staying disciplined and feeling like you need to take action?

While we almost always preach discipline and patience during periods of equity market volatility, and faith in the long-term trajectory of markets, there are usually a few smart moves one can make when markets are retreating. One of them is a strategy commonly referred to as tax-loss harvesting. The strategy is as simple as selling an investment that has lost value beyond what you paid for it within a taxable or non-retirement account.

Because the sale of that investment counts as a ‘capital loss’ in a given tax year, those losses can be used to offset capital gains from other parts of the portfolio in that same tax year, which would otherwise be taxable. There is a caveat, however. Per IRS rules, if you sell an investment for a capital loss, you cannot have bought the same investment in the 30 days immediately preceding or immediately after the sale date; otherwise, the capital loss will be disallowed.

But wait, doesn’t that fly in the face of “not selling when markets are down?” If you sell an investment and have to wait 30 days to buy it back, that sounds a lot like market-timing, which we do not believe to be a successful long-term investment strategy. Here’s where a broadly-diversified portfolio that utilizes mutual funds and ETFs can be extremely advantageous. An ETF or mutual fund that is held at a loss can be sold, and the proceeds from that sale can (usually) be immediately reinvested into a reasonably similar ETF or mutual fund. This maintains an investors ‘position’ in an investment without timing or selling during periods of volatility, yet unlocks potentially beneficial capital losses.

We actively implement tax-loss harvesting strategies in taxable non-retirement accounts and provide these services as part of our ongoing commitment to “Amplify” your client experience. However, we do realize there are often external accounts or non-Amplius assets that may not have been reviewed recently with an eye for tax efficiency.

This could be a good time to review those external assets and discuss if there are any tax-smart decisions to be made.

Liebmans’ Library

For February, we chose a Washington Post article about the surge in 401k millionaires based on a recent analysis by our custodian, Fidelity. Do not let the title mislead you. This is NOT an article about crypto nor are we taking a stand against crypto by any means. The key takeaway for us from this article is that steady savings and disciplined investing over the course of multiple decades is a generally reliable way to build wealth. We are encouraged to see that a record number of people continue to follow that path.

Aaron’s Action Items

As the 2021 tax filing deadline quickly approaches, please remember that you are eligible to make certain retirement account (IRA, Roth, SEP, IRA, etc.) contributions until April 18, 2022. Contributions and associated limits are based on 2021 income, age, and other factors. Here’s a good article to review. Please reach out to us if you would like to discuss this further.