Strategic tax-saving moves
Christopher Norwood • November 9, 2020
Tax-loss selling can help after tax returns.
Tax-loss selling is often overlooked and underappreciated by many clients
Consider the tax implications
Tax-loss selling can help after-tax returns. It is after-tax returns that count for an individual investor. It is the money you can spend. Unfortunately, money managers are not measured by after-tax returns. They are measured against a benchmark instead. Mutual fund managers have little incentive to manage money tax-efficiently.
Nor are investment advisors who implement tax-loss selling rewarded overly much by wealth management clients. Clients notice when the tax bill is high. They do not notice when the tax bill is low. Tax-loss selling can increase after-tax returns. It can also reduce them if the stock sold rises during the 30-day wash sale period.
We do tax-loss selling. There are a few different strategies. 1) Sell a stock to harvest the capital loss then buy it back 31 days later. The risk is the stock goes up and is no longer an attractive investment. 2) Double up on the stock for 30 days then sell the original shares. The risk is the stock falls during the holding period. 3) Buy a similar stock after harvesting the tax loss. An example is selling Exxon and buying Chevron. An alternative is selling Exxon and buying the Energy ETF (XLE).
Regardless, judicious tax-loss selling can increase a client’s after-tax return. Having more money to spend in retirement is good.
Regards,
Christopher R Norwood, CFA
Chief Market Strategist
Executive Summary The S&P finished the week at 6,114.69 The 2-year yield hit 4.38% after the Consumer Price Index (CPI) was released on Wednesday, but ended the week at 4.27% Investors dumped stocks when the CPI report was released Producer Price Index (PPI) has accelerated for five straight months PPI is a leading indicator of consumer inflation Inflation expectations are rising among fixed-income investors The 5- &10-year breakevens are rising The Stock Market
Executive Summary The S&P finished the week at 6025.99 The S&P has been trading sideways since 11 November Volatility (VIX) has spiked five times since last fall each time falling quickly back to mid-teen levels Microsoft, Alphabet, and Amazon have contributed to the negative tone with cautious guidance The Equity Risk Premium has been falling over the last 14 years Bonds have been a horrible investment over the last three, five, and ten years The jobs market continues to show strength Consumers' inflation expectations are increasing The stock market is expensive and will return less than its long-term average over the next decade Good stock picking will be critical if investors are to earn a return close to the long run average. The equity risk premium is too low which may make Treasury bonds a better investment than stocks on a risk adjusted basis over the next decade. Treasury bonds may outperform stocks over the next decade but not necessarily over the next few years since the 10-Year could rise another 100 basis points in the short term. The Stock Market
Executive Summary The S&P fell 1% last week, closing Friday at 6,040.53 The index hasn’t been able to break clear of resistance The AI space took a big hit Monday Tariffs on Canada, Mexico, and China GDP grew 2.3% annually in Q4 The futures market expected the funds rate to remain at 4.25-4.50% and it did The employment cost index (ECI) for Q4 2024 rose 0.9% QoQ Pending home sales took a hit in December The stock market continues to trend higher There is a relationship between the stock market and the economy More Interesting Charts to review
Executive Summary The S&P hit a new high on Thursday, reaching 6,128.18. The Volatility Index (VIX) fell to a low of 14.85 The VIX has declined sharply from 27.6 The 5.4% decline from 6 December to 13 January doesn’t qualify as a correction Watch Earnings, Inflation, and Interest Rates for the stock market's near-term direction Don't miss the Charts Worth Seeing at the bottom
Executive Summary The stock market's best week since Donald Trump’s re-election in November The S&P 500 rose 2.91% The CME FedWatch tool is predicting one cut in 2025 The fundamental narrative was all about inflation Earnings season is in full swing starting this week Higher than-expected interest rates and inflation might put downward pressure on stocks. Inflation expectations have been rising 2025 is likely to be a volatile year for the capital markets Deglobalization means higher inflation
Executive Summary The jobs report on Friday sparked stock and bond market selling Economic data hasn't justified rate cuts The Bond market has been signaling its disagreement with the Fed since the September cut The 10-year Treasury Yield is rising. Bond investors see inflation risks The Jobs market is strong Disinflation is slowing Investors should expect more volatility in 2025 Diversification means less portfolio volatility but also lower returns True diversification means always owning something that is underperforming Diversified portfolios will trail during a bull market
Executive Summary The Santa Claus rally was a no-show this year Friday's jobs report might bring volatility Economic data continues to point toward a strong economy The stock market is near all-time highs Corporate bond spreads are near record tights Liquidity is abundant No signs of a recession. The Fed is backing away from aggressive rate cuts. Inflation concerns are re-emerging 2024 in Review
Executive Summary The Stock Market dropped 2% last week The Dow ended its losing streak at 10 The Fed cut interest rates by a quarter-point last Wednesday Fewer rate cuts could mean slower economic growth and slower earnings growth Apollo’s chief economist Torsten Sløk predicts a 40% chance of Fed rate hikes in 2025 Value stocks continue to lag growth stocks and the overall market Value will make a comeback. It always does. History doesn’t repeat itself, but it often rhymes~ Mark Twain
Executive Summary 50-years of S&P 500 data The Dow ended Friday on a seven-day losing streak 96% chance the Fed will cut by 0.25% this week Stock market strategists are expecting more S&P 500 gains in 2025 Value Investing Outperforms over the Long Run Value can be found in international and emerging markets today Value can be found in the U.S. stock market, but it takes patience
Executive Summary Jobless claims report higher than forecast The Cboe Volatility Index (VIX) fell to 12.77, that's low Why is the Fed cutting at all? The S&P likely to finish the year above its current level The 10-year & 2-year Treasury yield are falling The Fed continues cutting despite a strong jobs market and high inflation Investors should look at the “low-flyer” companies that represent better value Mental Accounting and Risk