Jim Niedelman:
It is time once again for 4 Your Money. We’re joined by James Nelson, of NelsonCorp Wealth Management. Great to see you, James.
James Nelson:
Thanks, Jim. Good to see you too.
Jim Niedelman:
Back in April, we talked about tax strategy for investment accounts. The markets certainly look a lot different now. Are there still opportunities that you see for managing taxes in a portfolio?
James Nelson:
Absolutely. This year has been a case study for the importance of monitoring investments from a tax perspective. You mention markets look a little bit different, I think we’ve got a graph here that illustrates that. It’s entirely different than what we saw to be to start the year. In March and April, the S&P 500 was down about 35%. Since then, things have really rebound and we’re in the position that we’re in right now.
James Nelson:
Now, the graph also illustrates the loss and gain harvesting. Those are two big items that people still have time to do before the end of the year. We all probably sold a position or took our medicine a little bit on a position earlier in the year. Likewise, we be probably all have some decent winners by now to end the year. Matching those up so we have an offsetting impact as far as from a tax perspective makes good sense.
Jim Niedelman:
Are there other opportunities beyond stocks? What about bonds, for example?
James Nelson:
Yeah, so bonds have been almost just as volatile as the stock market this year. Bonds have had a little bit of a wild year with interest rates plummeting. I mean, the 10-year government bond is sub 1%, which is amazing. It’s kind of caused us to rethink things a little bit. Bonds are not the most tax-efficient investment. Bonds traditionally are held in retirement accounts, where we’re not paying tax on an annual basis. It’s not a taxable account so those tax inefficient investments make good sense to go into the retirement accounts. Although this year, and maybe going forward with low interest rates, the return is really not that significant. So holding those investments in a taxable account probably will not hurt us in a big way, tax wise, and then taking advantage of some of those returns, as far as on stocks and the tax-deferred account, could make it sense going forward.
Jim Niedelman:
How important is this type of tax management? Will investors see much of an impact from it?
James Nelson:
Yeah. It all depends on a person’s situation, but yes, you could see a big impact. I mean, lots of studies have showed that just the gain and lost harvest state, matching those up on an annual basis can provide upwards of 1% additional return. It really doesn’t take a lot of effort. A lot of people should be considering that, again, by the end of the year. While we can’t control markets, we can control our tax decisions on the tax front and we’ve got time to do it.
Jim Niedelman:
James Nelson, NelsonCorp Wealth Management. Thanks so much for the discussion.
James Nelson:
Yeah. Thank you, Jim.
Jim Niedelman:
If you missed any of this conversation, we have that available online at OurQuadCities.com.