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Would you consider making changes to your portfolio due to the upcoming election?
Old 02-20-2008, 06:12 PM   #1
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Would you consider making changes to your portfolio due to the upcoming election?

Hi everyone,

so I was watching the election coverage last night and I saw Obama's speech in Houston. The guy seems to be on a roll and I believe that he has a good chance to win the general election In November. (I am neutral in this election since I can't vote, so I am neither for nor against Obama, Mc Cain or Clinton, at least for the purpose of this thread).

But I couldn't help but notice how his proposed fiscal policies seem to have high earners and investors squarely in the crosshair. Things that seem to be on the table include Bush's tax cuts, the SS tax cap and the 15% tax on dividends and LT capital gains.

Now, my taxable portfolio is fairly tax friendly as it is (mostly equity index funds with low capital gain distributions). But it is also loaded with funds paying large qualified dividends (taxed at 15% right now). My goal in placing these funds in my taxable account was to bring up my cost basis while paying the lowest amount of taxes possible. If the tax on dividends and capital gains was to go up however to 25% or more, I am going to have to replace these funds with more tax efficient ones and move the dividend paying funds to my IRA.

Another thing I am contemplating is the possibility of moving my emergency fund from Vanguard's Prime money market fund to one of their tax-exempt MMF. (I am right now in the 25% tax bracket, but if the Bush's tax cut were to be eliminated, tax-exempt MMFs would start to look attractive).

There is not much I can do to lower the hit to my earned income however. We are already maxing out retirement accounts, we have very few deductions and we are bound to have even fewer as the AMT is catching up with us.

So what step, if any, would you take to shelter your finances from higher taxes?
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Old 02-20-2008, 06:15 PM   #2
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First, I would stop earning money. That would reduce my income and thus leave less need to shelter it from taxes.

Second, I do not keep any fixed income or bonds or my emergency fund in a taxable account. I have tax-efficient index funds and ETFs in my taxable account. They pay some dividends, but not alot. So I have reduced my Schedule B and Schedule D income to just about -$3000 a year. I found that if I keep my emergency fund in an IRA, then I don't need to use a tax-exempt money market fund for that.

I did hear some of Obama's ads stating how he is going to close corporate tax loopholes so the rich don't get richer. Also how he is going to help the middle class with their mortgages. Well, I'm rich and I don't think folks need any help with their mortgages. The ones who can't pay a mortgage deserve to lose their home. They were probably renters before they bought at 0% downpayment and a no-interest ARM balloon payment, so they deserve what they get or don't get. It ain't the end of the world.

Anyways, I find it unlikely that anyone can deliver on their campaign promises, so I don't think I have to change anything from what I am doing now.
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Old 02-20-2008, 06:41 PM   #3
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Although Obama is doing well, the election still seems to be up for grabs.

Secondly, as the previous poster mentioned, Presidential campaign promises often cannot be realized for many reasons, including the fact that related legislation would have to make it through Congress. Our government has these checks and balances.

But what if he IS elected, and what if his tax changes DO make it through Congress?

That's a lot of "if"s! First of all, it will take some time. I plan do make no changes in the immediate future, other than continue reading and learning.
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Old 02-20-2008, 06:48 PM   #4
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Most of our savings is through pension (non cola) and tax deferred. I haven't really thought about it. Off the top of my head I would do nothing.
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Old 02-20-2008, 06:48 PM   #5
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I've wondered the same. People point out that the stock market performed well during Bill Clinton's era but we also had grid lock. If Obama wins and we have a Demo Senate and House, what do we have in store for us? The perception is all the tax cuts will be reversed and it will be a unfriendly time for corporations. Will it be prudent to trim back on stocks?
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Old 02-20-2008, 06:58 PM   #6
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That's a lot of "if"s! First of all, it will take some time. I plan do make no changes in the immediate future, other than continue reading and learning.
I am not saying one should make any irreversible decision right now, months before any candidate has even won the election. But I guess it does not hurt to start thinking about it... I know that politicians say a lot of things on the campaign trail and that often times those are just empty promises they can't deliver on.
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Old 02-20-2008, 07:15 PM   #7
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I am not saying one should make any irreversible decision right now, months before any candidate has even won the election. But I guess it does not hurt to start thinking about it... I know that politicians say a lot of things on the campaign trail and that often times those are just empty promises they can't deliver on.
I agree! I don't think I will ever stop thinking and learning about these things, and as time passes hopefully my abilities and thought processes will continually develop and mature.
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Old 02-20-2008, 07:16 PM   #8
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Nope - retirement is TR2015 - let those Vanguard computers do their thing.

I certainly hope the election and state of the world doesn't interefer with football season.

Now that would really piss me off.

heh heh heh - As for taxation and possible stagflation - remember there is no free lunch. Mr Market also gets hit pound of flesh one way or another. Meanwhile back at the ranch - I'm not getting any younger - party on!
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Old 02-20-2008, 07:34 PM   #9
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Been reading the WSJ? Getting Going - WSJ.com
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Old 02-20-2008, 07:48 PM   #10
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Been reading the WSJ? Getting Going - WSJ.com
No I had not... I guess I am not the only one wondering what impact that election will have on my wallet...
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Old 02-21-2008, 10:13 AM   #11
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Now, my taxable portfolio is fairly tax friendly as it is (mostly equity index funds with low capital gain distributions). But it is also loaded with funds paying large qualified dividends (taxed at 15% right now). My goal in placing these funds in my taxable account was to bring up my cost basis while paying the lowest amount of taxes possible. If the tax on dividends and capital gains was to go up however to 25% or more, I am going to have to replace these funds with more tax efficient ones and move the dividend paying funds to my IRA.

...So what step, if any, would you take to shelter your finances from higher taxes?
Wouldn't it make sense to always put the high dividend paying funds in the IRAs and the lower dividend paying-tax efficient funds in the taxable? i.e. put things linke DVY in IRA and VTSMX in taxable.

- Alec
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Old 02-21-2008, 12:57 PM   #12
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Wouldn't it make sense to always put the high dividend paying funds in the IRAs and the lower dividend paying-tax efficient funds in the taxable? i.e. put things linke DVY in IRA and VTSMX in taxable.

- Alec
It depends how those dividends are taxed...
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Old 02-21-2008, 02:00 PM   #13
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My wife and I are leaning towards switching my contributions to a roth 401(k). Her's will stay in a traditional 401(k) (her workplace doesn't offer the roth option). We don't anticipate being in a higher bracket when we retire, but it might afford a bit of flexibility down the road...
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Old 02-21-2008, 02:03 PM   #14
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We live in a high tax state. Plan on moving out of it when we retire. So we will be sticking with the regular 403b.
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Old 02-21-2008, 02:38 PM   #15
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I listened to a top analyst with a major company yesterday and she stated that for the economy, McCain would be best.
She felt that Obama was slightly left of the market and might take a while to align with the market. Hilary has her taxes to raise.
She did state that once a person gets elected, they all tend to move towards center as all politicians get hit from so many sides they end up trying to please all.
For my money, I've always liked the adage of having a President on the opposite side of Congress. The best government to leave alone Wall St. is one on opposing sides.
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