Will you change your portfolio for "fiscal cliff"

[scrabbler1]

Quote:

Originally Posted by janeeyre I know I have a lot to learn about finance. So, I don't understand how you can pay 0% tax on long term capital gains. Can you give me an example. Thanks

Try these numbers:

Single filer, taxable income $23k; of that, LT cap gains $5k. Because the marginal tax bracket is 15%, the LT cap gains is in the 0% bracket. The only income tax due is on the remaining $18k.

[mickeyd]

The Fiscal Cliff (FC) will be settled in December by those elected phonies in DC. I will make no change to my financial plan nor long term goals. My 60/40 mix will stay with me for a long time.

"Stay the course." Bogle

[Running_Man]

There seems to be agreement overall here that tax policy will have no effect that can be anticipated for stocks, but that one can still tell when stocks are generically "cheap" and buy or generically "overpriced" and sell, but that the actions taken in Washington have no effect on the market.
Recent evidence is that government decisions do have an impact on the markets. A quick look at the ASE - Greek stock market - down 70 percent from September 2009 to today - shows the type of impact that can occur when a goverment merely begins the process of trying to control it's spending.

As long as the US government continues 1 trillion plus deficits and buying all mortgages to hold interest rates for 30 years to citizens lower than any country could have obtained just a few years ago, then the US market will hold up fine. To me this argument is similar in nature to the one in 2007 on the housing market, that meaningful impacts from a decline in housing would never be allowed to occur. Both are well known, fully reported in the paper and generally not seen as a risk to the economy other than in theory that certainly the Fed and our government are well aware of and can control.

Most likely an agreement of some sort will be reached to kick the can at least for another year down the road, but that does not mean the agreement reached will be neutral for the outlook on stocks. I sold 50% of my stock holdings on October 21 when the S&P was at 1433, not too far from where it is now, because I believe the risk to stocks is very high in the coming months. I may miss a gigantic rally between now and early February, but I prefer to see exactly what is going to be offered going forward. Government policies are going to have a profound impact on overall business practices and conditions well into 2014, and I prefer to know what the financial rules are before I decide to play the game.

[yakers]

Quote:

Originally Posted by Running_Man I sold 50% of my stock holdings on October 21 when the S&P was at 1433, not too far from where it is now, because I believe the risk to stocks is very high in the coming months. .

So did you go to cash or bonds? It does seem like a good time to get out of the stock market but doesn't seem like such a good time for bonds, they could take a hit. Based on avialable information about risk & return I figure on holding my AA since I can't figure anything better. I am 62 and my target AA is 60 stock/30bonds /10cash. It has worked for me, no idea about what will happen going forward.

[Running_Man]

I think it is most important to determine your own approach and stick to it, as that is the best way to ultimately be successful in investing. Otherwise you are adrift without a rudder and will ultimately for sure make a mistake and not even realize you are making a mistake.

However, for me and the non-rules follower that I am , I sold my shares in NS, thankfully in time has since imploded due to a decline in it's asphalt business, VFC which is a company I like very much but in valuation of dividend returns I let it go, AMGN same story, KMP, VVC a nice Indiana utility company I sold due to needing to sell something to get down by 50% and the dividend growth rate of VVC was the lowest in my portfolio. I kept MO, CHV, KO, ACN, and MCD.

With the proceeds, I used 5% of the total to increase my holdings in gold and silver, not because I think it is a great time to buy but merely to get my precious metal holdings in range with where I would like them and for now have the remainder in cash. If nothing comes up that I like I guess I'll be living on a 2.5% withdrawal rate, basically the same as the S&P500 dividend rate. But I would be very surprised if some good opportunities do not arise in the next couple of years before I retire.

[jdiercks]

Quote:

Originally Posted by janeeyre I have been reading conflicting reports on investing for the fiscal cliff. Here is one article..... Retiring on the edge of the fiscal cliff - Robert Powell's Retirement Portfolio - MarketWatch. Are you making any changes? I did put an extra $20,000. in my money market.

The key to whatever happens with the so called fiscal cliff is to adjust. Have you ever noticed that study after study has shown that the wealthy never pay more than a certain percentage of their income in taxes [mod edit]. What they do that is so important is they plan for whatever comes and take action before something sunsets or changes.

So for retirees that might mean simple things like maximizing your deductible retirement contributions to IRAs or 401k's (if you are still making earned income of some kind). This reduces your adjusted gross income and lowers the threshold for itemized deduction phase outs in the future.

In 2012. it might mean accelerating income to take advantage of likely lower rates, for example collecting on that amount you lent to your son with interest. It might also mean deferring deductions, if possible, until 2013 when they are more useful. For example, you could wait until January 1st to make any kind of mortgage or debt payment to have that payment and related interest count in 2013 (assuming that does not make the payment late and result in late charges or default).

It also may mean taking advantage of current tax regulations that are favorable to retirees. An example, it might make sense to be loading up on your medical costs in 2012 if you have a chance to meet the 7.5% of adjusted gross income floor before year end. This is because that floor rises to 10% in 2013.

It would also make sense for those with liquid high net worths to consider giving or estate planning before year end as the gift and estate laws are likely to revert back to prior tax laws and a $1 million estate and gift exclusion.

[davidkluke]

I think the "fiscal cliff" is something to be aware of and for some individuals there are some steps that should be taken to minimize short term risks, but the reality is that for the most part this is financial media hype.

[Packman]

Not sure I fully understand this whole "cliff" thing, but I bought a parachute anyway.

[Htown Harry]

Quote:

Originally Posted by bizlady We also cashed in some long term gains to lock in a 0% tax..

Quote:

Originally Posted by janeeyre I know I have a lot to learn about finance. So, I don't understand how you can pay 0% tax on long term capital gains. Can you give me an example. Thanks

Quote:

Originally Posted by scrabbler1 Try these numbers: Single filer, taxable income $23k; of that, LT cap gains $5k. Because the marginal tax bracket is 15%, the LT cap gains is in the 0% bracket. The only income tax due is on the remaining $18k.

Jane, buying an investment asset then holding it for a period produces either a gain or a loss. Under the tax code, this is either a short-term or long-term gain or loss that results.

When it comes time to file your taxes for the year of the sale, a long-term capital loss is deductible, but the sum of all gains and losses can only be deducted to $3000 for that year. If the sum of all sales gains and losses is positive, taxes are due at the capital gains rate.

On the other hand, if the net loss was $10,000, then the remaining $7000 may be "carried over" to later years for another $3000 per year deduction OR for use as loss in calculating the capital gains tax due in the second year. In effect, capital gains are taxed in the year earned, less any capital losses that year and less up to $3000 of net capital losses carried over from previous years.

While Scrabbler is correct, I believe Bizlady was referring to her strategy of using a negative capital gains carryover from 2011 to offset the gain she will book from an asset sale in 2012. To extend the example from above, she might have chosen to sell assets with a 2012 capital gain of $7000.

More here:
Capital Loss Carryover Definition | Investopedia
Tax Gain/Loss Harvesting Definition | Investopedia

[RockyMtn]

Quote:

Originally Posted by janeeyre I know I have a lot to learn about finance. So, I don't understand how you can pay 0% tax on long term capital gains. Can you give me an example. Thanks

two ways I can think of....

1. Have enough losses to offset your gains.
2. Have a low enough AGI to qualify for 0% cap gains rate.

[HFWR]

Quote:

Originally Posted by davidkluke I think the "fiscal cliff" is ... for the most part ... financial media hype.

With some political theater thrown in for good measure...

[pb4uski]

Quote:

Originally Posted by bizlady We also cashed in some long term gains to lock in a 0% tax. ...

Quote:

Originally Posted by janeeyre I know I have a lot to learn about finance. So, I don't understand how you can pay 0% tax on long term capital gains. Can you give me an example. Thanks

Jane,

What I suspect Bizlady is referring to is that in 2012 if your taxable income is in the 15% tax bracket (or lower, so taxable income below ~$70k for married filing jointly) then the federal income tax rate on capital gains is 0% (whereas it is "usually" 15% or more).

Many of us are taking advantage of this 0% tax rate by selling taxable investments with gains, but being careful that we do so only to the extent that we keep our taxable income in the 15% tax bracket.

[Tadpole]

Just don't care anymore. Girls just want to have fun.

[freebird5825]

No planned changes to my portfolio.

[easysurfer]

No. I don't plan on doing anything special for the cliffhanger.

[eytonxav]

Moved some equity to cash until the drama/suspense ends, remembering August 2011 all to well.

[donheff]

Quote:

Originally Posted by yakers So did you go to cash or bonds? It does seem like a good time to get out of the stock market but doesn't seem like such a good time for bonds, they could take a hit. Based on avialable information about risk & return I figure on holding my AA since I can't figure anything better. I am 62 and my target AA is 60 stock/30bonds /10cash. It has worked for me, no idea about what will happen going forward.

I am about the same and plan to stay put. I think there is a good chance we could briefly go over the cliff leading to a big dip in the markets. But I am not about to sell equities now in anticipation of a dip because there is also a fair chance that the Hill will cobble together some sort of package before the recess and the dip won't materialize. If we go over and the markets fall big I will be more tempted to buy equities then, but I will probably just rebalance to get back to 60/40 and not push further.

[bizlady]

Quote:

Originally Posted by pb4uski Jane, What I suspect Bizlady is referring to is that in 2012 if your taxable income is in the 15% tax bracket (or lower, so taxable income below ~$70k for married filing jointly) then the federal income tax rate on capital gains is 0% (whereas it is "usually" 15% or more). Many of us are taking advantage of this 0% tax rate by selling taxable investments with gains, but being careful that we do so only to the extent that we keep our taxable income in the 15% tax bracket.

Actually. I really did mean 0 % tax on the sale. We are in a unique situation for a couple years with low taxable income until we start tapping retirement funds. While we do have some carryover, those in the 10 and 15% tax bracket pay nothing on LT capital gains throughout this year yet. Our limited income, combined with paying for medical insurance gets us to these brackets.


http://www.bankrate.com/finance/taxe...vestors-1.aspx

[prototype]

I didn’t do much except a few of things of the things already mentioned like taking out what I could from my 401K since I have headroom on the 15% bracket being single head of household.
I did have a slightly OT question/comment on the fiscal cliff (didn’t see any specific recent thread on it except this one). Without understanding all the details, mainstream media makes it to be the “end of the world”. While I sort of see the fiscal cliff a combination of tax increases and spending cuts, therefore a “forced” compromise between Obama/Dems and the GOP. What am I missing?

[mickeyd]

Quote:

Originally Posted by Packman Not sure I fully understand this whole "cliff" thing, but I bought a parachute anyway.

Maybe you should have purchased one of these babies. Seems more appropriate for cliff diving. Just sayin...


http://www.google.com/search?q=flyin...iw=760&bih=392