December Market Update – Tax Harvesting

December Market Update – Tax Harvesting


This is the last market update of 2022. I can’t believe how time has flown. However, it’s been quite a rocky ride that is for sure!

On the Power Hour last week, we talked a little bit about the impact of the midterm elections and the result of that with a Republican led house, and a Democrat controlled Senate.

Republicans will be probably doing some more investigations, Democrats will also be pushing their agenda in the Senate on the Green New Deal. How are markets going to respond?

So far, markets have responded well. There’s a lot of good positive signs that that inflation is tapering off at the moment and corporate earnings are still really strong.

If we look back historically, the next 12 months after a mid-term election, the market has done well. Also, when the Republican have controlled house, the market has done well.

But I also going to want to just put a few cautions.There’s still a lot of uncertainty in the world, and there’s the green New Deal and the war for the control of cryptocurrency.

Now, I hope that history is right, and we have a good market after this midterm, but with all of this, the market could still be a little rocky.

It’s never good to get complacent because of a market uptick or anything else.

Our managers are constantly monitoring the portfolios and making trades and adjustments as needed. They have been able to buy some good companies at a discount.

They’re also doing a lot of tax swaps and tax harvesting right now in the brokerage accounts.

With the volatility this year, there’s companies that have a losses. Even if they still want to hold that position, they might sell to harvest the tax loss that can offset a gain another company now or in the future. Then, they do some repositioning and buy another company that’s very similar to keep that position.

Many people overlook this key aspect in portfolio management, and they should address it immediately.

So, if you have accounts that are not an IRA, just a brokerage account, and you’re not doing tax management like this, then your returns that showing on your statement are not your actual returns as the balance doesn’t reflect the taxes you owe.

What happens is you almost get handcuffed into a company or a fund, because you have a high capital gains.

Now, there are few main reasons why you’d invest. Either you want to create income from it later, you want it there if you need it, or you plan on passing it to beneficiaries, or some combination.

The way to avoid that is to wait until the stock or fund drops in value which means while you don’t have a high tax, you have lost money in the market. Or you leave it until it goes to your beneficiaries, and they will receive a step up in basis but that means you can’t use it now.

You should actively consider tax management opportunities right now because once January 1 arrives, you will lose the opportunity to undertake any of these actions for 2022.

We would be delighted to review your portfolio and assist you in strategic tax planning while also ensuring that your portfolio is appropriately positioned. Then, if 2023 brings volatility again, you know you will be ok. That your income is income protected and that you are positioned in the right way to take advantage of opportunities avoid some of the dangers ahead, reducing your risk.

Bottom line, don’t be complacent about your portfolio!

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