It is a good practice to conduct tax-loss harvesting in your taxable accounts towards the end of the year. Since most securities are down this year, you may have losses on paper and can realize the losses by replacing the losing investments with similar securities or buying back the same securities after 30 days. After you offset gains with losses, you can deduct up to $3,000 on your tax return and carry over the rest of the losses year after year for future use. Accumulating capital losses can be useful as you may need to sell assets with gains later on. You can use capital losses to offset any capital gains, such as losses from stocks to offset gains from real estate properties. It is also a good habit to keep a record of your capital losses so that you can take advantage of income deduction and lower your capital gains tax in the future.
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Sequence of return risk is often overlooked by retirees or those approaching retirement. If you need to withdraw your retirement funds from a portfolio which is down, you have less to grow when the market goes back up. You may lag behind and need to catch up. It is advisable to have some guaranteed income sources other than social security benefits, such as pensions, annuities and fixed/passive income portfolio, that you can withdraw from instead of selling from your investment portfolio. It is a good practice to review your retirement income plan and investment strategies and adjust them accordingly if needed to make sure you are on track. Being flexible about your spending habits can also make your retirement funds last longer.
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As we are wrapping up the year, it is a reminder to apply some tax savings tips before the end of the year. If you have not maximized your contributions to your retirement plans, you can increase the savings rate to do so. If your income is lower this year, consider converting traditional IRAs to Roth IRAs. You may want to do partial conversion because the full conversion may bump you up to a higher marginal tax rate. If you have a higher income or windfall profits/income and are charitably inclined, setting up and funding a Donor-Advised Fund is an easy way to deduct taxes and make donations of your choices.
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Emotions of fear and greed drive the stock market. As quoted by Warren Buffet, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. If you would like to do the same, you will need to know what the market sentiment is. CNN has created the Fear and Greed Index to gauge stock market movements and whether stocks are fairly priced. If there is excessive fear, the market will go down; if there is too much greed, the market will surge. The index is for reference only and it is not recommended to solely rely upon it to make your informed investment decisions.
Full story: CNN