Skip to content

Dying with “Unrealized” Losses

From time to time investors accumulate “unrealized losses” in an investment.  These are losses that an investor could incur if they sold the investment.  And by doing so, they may be able to claim the loss on their tax return up to annual limits allowed by the IRS.

This is the big issue most people hear little about.  If the investor dies before realizing the loss, those losses will go away and cannot be claimed on the tax return.  The losses therefore could be lost forever.

Let’s look at why this may be important.  For an example, let’s say Mr. Jones is 85 years old and some time ago he bought an investment from his broker that today is valued at $20,000 less than his original investment, or cost basis.  If he sold the investment today he could realize the loss of $20,000.  Mr. Jones can use that loss by offsetting future taxable investment gains, plus up to an additional $3,000 per year of loss deductions.

While a somewhat complicated subject to discuss, be sure to talk this over with your investment advisor and/or tax professional.  If it makes sense to continue to hold the investment, your investment advisor should be able to explain how you can repurchase the investment after 31 days to avoid “wash sale rules”.  Don’t leave deductible losses on the table if your situation warrants taking advantage of some otherwise commonly overlooked tax benefits.

 

Small Business Owners Building Wealth

We have all heard the typical strategies to building wealth… IRA accounts, investing in mutual funds, stocks and bonds, 401(k) plans, paying down debt, etc.  These are all good strategies.  However, another excellent strategy for many business owners is through the use of real estate.  For this strategy, the business owner needs to own the real estate they use to “house” the business.  Depending on the nature of the business it could be an office, multi-tenant building, warehouse or storage facility, shop, etc.  The benefits can be numerous from enhancing business/employee productivity, to numerous tax benefits and incentives (depreciation, tax write-offs, etc.).  The owner can also possibly experience an increasing real estate value over time to help build wealth for later use in retirement.  As far as the monetary benefits, we have seen some business owners (over the years) add a considerable amount to their personal net worth (in addition to their other assets and retirement plans) by the time they retire.  This strategy may seem huge and overwhelming, but with some good planning and timely advice upfront this dream may become a reality.

 

A Brief Thought on “Market Timing”

Recently I was reminded by one of my most respected CFP® friends of a quote by Warren Buffet regarding investors overreacting during market corrections.  Karl has a “knack” of giving sound, time-tested financial advice in a very crystal clear way his clients and others appreciate.  Hopefully this will shed light on why investment advisors throughout the country encourage clients to avoid getting drawn into market timing and trying to “run for exit the doors” when markets correct.

The Market is the most efficient mechanism anywhere in the world for transferring wealth from inpatient people to patient people.” – Warren Buffet

 

Market Update & Perspectives

After days like these in the markets we know people are concerned.  So hopefully these thoughts can help add a little light to something that may seem very “dark” and confusing.

I could bore you with details and go on and on about the possible cause (China’s economy slowing, a strong U.S. dollar, the Federal Reserve possibly raising interest rates in September, the collapse in the oil sector as well as other raw materials, etc.) but remember there typically is not just “one” event that causes this much volatility.

So you may ask what these events (external factors) might have to do with the U.S. stock market.  First, investors and market prognosticators are worried that individual companies that make up the stock market may begin to suffer lower earnings and slower revenue growth causing their stock prices to drop even more.  Additionally, there are some views that these events could cause our economy to enter another recession.

In terms of the U.S. our economy is currently in the best condition around the world.   Economic growth is not robust, but as economist Brian Wesbury says, “we are seeing a steady ‘plow horse’ type of growth.”  And though our oil industry is in the “doldrums” the U.S. consumer and our banking system is in much better financial condition (since 2008).  Other economic sectors such as retail sales, wages and housing starts are experiencing good growth.

In terms of the U.S. consumer we haven’t paid just $2/gallon for gasoline since March 2012, and unemployment is much lower with more Americans back at work today.  And regarding China… keep in mind that our exports to China only amount to 0.7% (less than 1%) of our economy.

As I am writing this today, the U.S. stock markets have just rallied to close up over 600 points (almost 4% on the day) from recently being down approximately 12.5% from their annual highs.  History tells us on average that we experience a 10% correction every 18 months (although the last was in October 2011) and 5% corrections occur as much as 4 times every 12 months.  Also, looking at the calendar August through early October is typically a bad time in the market.

So is there a positive in all this… yes!  There has been lots of money sitting on the sidelines waiting for lower prices to enter the markets.  These type of swings in the stock market are “buying opportunities” for new money that has been waiting for a good entry point.  During times like these investors can step in and “buy bargains” which also brings new money in to help support stocks.  After a period of time markets typically recover and go on to set new highs.

Our suggestion?  Step away from all this “clutter and noise” and try not to react.  Remember what you voiced when you started investing… a long-term perspective and that you realized markets would fluctuate (go up and also go down).  Research tells us when volatility kicks in, this is typically the time investors make “poor” investment decisions and suffer the consequences for years.  If you simply have the urge to try to “fix it” or you can’t handle what’s going on, then get professional investment advice now.

Remember we are here to help.  Please call us if we can help you or someone you know.

Getting Financially Ready for Retirement

How long has it been since you took a good look at your financial situation?  I have found a good exercise each year is to take out your “yellow pad” and make a list of all your assets and liabilities.  Although this may not tell you how close you are to being ready to retire, it provides a good snapshot of your overall situation.

When doing this you may notice accounts that need attention, investments that may be suffering, or debt that may need the “aggressive touch” to pay off.  Peek into each of your investment statements and see if you notice too much money sitting in a money market or cash position earning nothing.  While interest rates are still very low ask yourself if your mortgage needs refinancing.

As you plot out necessary changes to make, remember the old adage, “You can’t eat an elephant in one bite!”  So make some gradual changes like increasing your monthly 401(k) or IRA contribution, increasing your monthly payment on a debt you owe, reallocating your investment portfolio to be more effective, or simply realizing that you need “help” and make an appointment with a Certified Financial Planner™.

Your Spouse’s Retirement & Social Security

Let’s assume for a moment that you are now gone and your surviving spouse must account for all the income she will receive.  A common mistake today is if you just assume that your surviving spouse will continue to receive “both” Social Security checks just like during your retirement.  However, this is not correct.  Your spouse will only receive “one” check from Social Security.  In other words, the total Social Security income will be reduced and a good rule of thumb is that your spouse can receive the larger check the two of you had been receiving.

Needing Retirement Income?

Many pre-retirees are concerned and wondering if they will have enough retirement income when they retire.  So how can they begin to improve their situation?

A simple and excellent strategy is to have all debt paid off by the time of retirement.  For many people this can be at least $1,000 to $1,500 per month of cash flow improvement.   And one of the best ways to possibly accomplish this is to begin years before retirement paying more each month towards your debt.  This can allow you to eliminate your debt much faster with the goal of paying it all off before your reach your retirement date.  In addition, you may also receive an intangible benefit… the great feeling that you owe no one, and the freedom that comes with this.

Don’t make this Social Security mistake!

One of the best financial planning strategies for Social Security is lost if the husband and/or wife begins taking benefits before their “full retirement age”.  Please seek competent professional advice before you or someone you know starts drawing Social Security.  There could be strategies available that benefit you if you will stop and consider them “prior to” filing your application…

Current Market Volatility

With the recent volatility in the stock market, and bad news on every TV channel, we thought this article from Brian S. Wesbury, Chief Economist with First Trust, might help provide a good “snapshot” of things.  Click here to view the article… and please don’t hesitate to call if you have questions or concerns.

Heard on the Street…

True story: this week my 7-year old son and I were driving home from church in a silent truck.  Then, all of a sudden, he yelled out “Everybody knows that!”.   Of course I replied asking, “Everybody knows what?”  His answer: “In 15 minutes you can save 15% or more on car insurance.”  Admittedly, this was not quite what I expected.  Then a few seconds later came his follow-up, “Dad, what’s a percent?

Many times we believe something just because we hear it over and over, regardless of whether we fully understand it or take time to research its validity.  Believe it or not, this happens in the investment world as investors buy into the “hottest stock tip” or become frightened after listening over and over to doomsday predictions.  Regardless of their specific situation or well developed plan, it somehow becomes easier to stray off path when the “noise” gets louder – whether from family, a friend’s so-called “successful investment story” or the news and media.  Remember, you must maintain faith in your plan.

Playing the “what-if” game can be dangerous just like following the latest trend can leave you at risk.  There’s a time to turn down the volume… and when things seem just too good to be true, don’t hesitate to ask your advisor.  It can be good to get a second opinion or an objective viewpoint before making a clouded or emotional decision that you come to regret down the road.