By CHRIS HANLY
INVESTMENT CONSULTANT, GARY GOLDBERG FINANCIAL SERVICES
Ok, so it’s nearly over – after next week, the elections will have come and gone. Of course, given the high levels of anxiety over the candidates and what the election will mean for our country, economy and the market is highly contentious. But it’s really not the politics of it all we should be so concerned with, rather it is the fact that we are about the enter the eighth year of a bull-market and that many investors are about to commit one of the most common investment mistakes made – giving up your gains!
Many investors should have significant gains built up in their portfolios (if you don’t we need to talk), but these are just paper gains. Of course the argument against selling is often the tax consequence, which is a valid point, but should not be the sole driver of your investment decisions. First let’s deal with an easy one – IRA and other retirement accounts. One of the great advantages of a qualified retirement account such as and IRA, is that you are able to realize gains without having to pay taxes until you withdraw your money from the IRA account. In other words, there is no excuse not to act because of potential tax implications within retirement accounts. Unfortunately, when it comes to traditional investment accounts, whether individual or joint, taxes can play a significant role. However, keep in mind that depending on your taxable income, you may be in a zero (0%) percent or fifteen (15%) percent tax bracket, and only your gains are taxed – so the tax bite may not be as bad as you think, not to mention that taxes are more likely to rise than fall in the coming years.
One of the most important questions every investor should be asking themselves is “what is this money for,” i.e. how and when will I utilize these funds. In many cases the answer is to “help provide retirement income.” If that’s the case with you, consider “locking in” these gains and moving the investment into a managed variable annuity that offers a guaranteed income for life option. These investment vehicles have been growing in popularity with many investors as they help insure that this portion will have a very predictable income stream associated with it, all the while still having the opportunity in participating in future market gains. The downside of these investments is that once the monies are in the “annuity shell,” any income taken from them will likely be taxable at an ordinary income rate. It is precisely this reason you must talk with a qualified financial professional before determining which portion of your investment portfolio might be appropriate for a managed variable annuity. For liquidity reasons, only a portion of your assets should be considered for a managed variable annuity. In addition to this, carefully reviewing and fine tuning your portfolio to lower inadvertent risk – do you know how much exposure the stocks and mutual funds you own have to oil prices, Europe, or China? And make sure to review your bond portfolio as well, as the Fed gets ready to hike rates, possibly several times in 2017, the impact on fixed income securities as well as interest rate sensitive stocks such as Utilities and REITS can be meaningful. Don’t hesitate to get a second opinion on your portfolio, it might save you a lot of headaches.
Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2907 or [email protected].