Capital Gains in an environment of All Time Highs
Even novice investors understand the adage ‘Buy low, sell high’. But the thing about making investment decisions is they become much more emotional than analytical. Fear and Greed are powerful motivators, so when the financial markets reach historic levels, it is best to remember that, and take a step back to look at the the larger picture.
With the equities markets setting new records for the highest valuation ever, is now a good time to sell? The answer, in my opinion, is a resounding yes. Another prescient indicator is Market Cap to GDP which, as the name suggests, compares the current economy to the price of the equity market. This indicator is telling us that the downside risk is far greater than the potential upside reward. Remember, when the market is setting new highs, everyone is a winner. Don’t be the last one to lock in your gains.
If I haven’t yet made my point clear, I am telling you what your broker never will: SELL! Not everything, but evaluate your situation and take advantage of high prices to move assets out of equities. Remember, you can always buy them back when they go on sale.
Now admittedly we live in a central bank driven MMT world, and investment of surplus funds in the equities market is warranted. With the Federal Reserve embarking on a new round of rate cuts, we are as likely to see a melt up as we are a violent downside correction. But at these levels, it is prudent to ‘balance your portfolio’ away from over priced equities.
Many investors are faced with tax consequences when considering making substantial gains. Even though long term capital gains taxes are far less onerous than earned income, the tax can still be considerable. Nonetheless, this should not prevent an investor from seizing the opportunity to realize a hard earned profit.
If you have capital gains exposure from equities, Angel investments (RetroSense), real estate, or any other source BlueWater Angels has an opportunity to defer, and potentially eliminate that tax obligation. Possibly even to allow you to earn income off the investment of those deferred taxes. If you would like to discuss this opportunity, contact us and in consultation with your financial advisors we can determine how much this opportunity can benefit you and your family.