The Weekly Wealth of Knowledge is your download of this week's most important topics related to financial planning, the markets, and our community. In this issue:
- Silver linings of economic disruptions - tax loss harvesting (3 minute read)
- Power of diversification (2 minute read)
- Strength of small business owners (2 minute video)
Silver Linings of Economic Disruptions
This month we are focused on timely financial planning “action items” that everyone can act on given our current economic environment. This week’s to do is taking tax losses in your portfolio to offset future gains and taxable income. Tax loss harvesting is when you sell a position for a loss in your portfolio and at the same time use the proceeds from the sale to invest in an alternative investment to maintain exposure to the markets should they recover. By realizing your losses, you are able to “bank” them and use the losses to offset gains at the end of the year, or up to $3,000 of taxable income. Any losses you do not use in the year you realize them can be carried forward to offset gains in future years.
When tax loss harvesting it is important to remember that: 1.) it can only be done in non-qualified accounts (i.e. not retirement accounts because you only pay taxes in those accounts when you take the money out), and 2.) you cannot sell an investment and then buy back the same investment. That would be considered a “wash sale” and you would not be able to use the losses. The alternative investment purchased cannot be “substantially identical” to the one being sold. If you are interested in learning more about the tax loss harvesting we do at MONECO, or if you feel it is something you should be taking advantage of in your portfolio, do not hesitate to reach out.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss.
The Power of Diversification
Diversification is an approach that spreads out a wide variety of investments within your portfolio. This can be done across different asset classes (areas of the economy), as well as geographically (i.e. foreign and domestic). It can be good strategy to not fall into the old adage of "putting all your eggs into one basket." By diversifying your underlying investments into different asset classes, you can potentially help mitigate some risk.
Click here for a historical chart that graphically shows how varying asset classes have done over time.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Importance of Small Business Owners
During these times, small business owners play an even more integral role within the greater economy. Let us check in with LPL's Chief Investment Officer, Burt White, to see how they are doing and what the future may hold for them...