Rebalancing funds in 2010
Tim Suffish, CFA, CPA
It's certainly cliché to say so, but "where has the year gone?" In the investment world we do our best to keep our focus on the "long term," and where we see both opportunities and pitfalls on the road ahead.
We are, however, always aware of where the markets are on a calendar year basis.
When looking at the rebound in the market in 2009, we often hear (and say); "we're having a good year so far, but where will we end the year?" Well . year end is just about here !
Balancing gains and losses
Along with year end comes the ritualistic tax dance of timing income and expenses, realizing gains and losses, and otherwise minimizing the pain that is our tax system. Given the rollercoaster that we've been on lately in the stock market, there is ample opportunity to sell both gainers and losers this year.
Although there was a move earlier this year for Congress to consider raising the $3,000 limit on losses in excess of gains, to be offset against ordinary income, that limit is still in place for 2009. When harvesting losses, remember the wash sale rule which disallows the loss if you've purchased the same security within 30 days before or after the date of sale.
Using EFTs to recover sales
If you would like to maintain your exposure to a particular sector of the economy, consider the use of ETFs (exchange traded funds) as a replacement security. For example, if you are selling XYZ Bank Stock to realize a capital loss, but would like to maintain exposure to banks (and not be on the sidelines for 30 days), you could invest in a bank sector ETF. There are ETFs available for virtually every sector in the market, so be it a bank stock, tech stock, or drug stock, you'll be covered.
Maximizing tax cuts
One additional factor to keep in mind, especially now that we're in such a hyper-politicized environment that is changing by the day, is the sunsetting of the Bush tax cuts for dividend income and capital gains.
As of January 1, 2011, the 15 percent cap gains rate is scheduled to bump by 5 percent to 20 percent.
Given the debt and defecits that the federal government is facing, I would consider it highly likely that the 15 percent rate that we are currently "enjoying" will ever be seen again.
Note to self: the time to realize gains is now (through next year end).
Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street, Springfield, MA; Phone is 413-733-5111 or 1-800443-7624; web site:
www.stgermaininvestments.com
