Month: April 2021

Many retirees avoid investing in emerging markets, given their potential volatility, but a small allocation to increase your growth potential may be appropriate.

Also known as developing markets, well-known emerging markets include Brazil, India, Mexico, Pakistan, Russia, Saudi Arabia and many others. These markets may sound exotic, but emerging markets are not necessarily the significantly underdeveloped mysteries they used to be. In fact, some are economic powerhouses, such as China.

Why consider emerging markets?

First, investing in emerging markets can provide growth potential as they transition from industrial economies to digital economies. Many emerging markets have a high number of graduates in technology fields, significant venture capital funding and policy support for innovation (such as tax credits).

Second, emerging markets may also offer diversification, which means that emerging market stocks may perform well when developed market stocks are performing poorly. This is always a good thing to have in your portfolio.

But emerging markets are not appropriate for all investors. There are risks. The main risk is volatility: any political or currency-related crisis in an emerging market could cause its stocks to decline. Another concern is the potential impact of U.S. interest rate hikes, which can lead to a stronger U.S. dollar and may lead emerging markets to underperform. Those investors who are in or near retirement may not be able to tolerate these fluctuations. So, before investing in emerging markets, it is a good idea to be sure you understand the risks and are comfortable with them.

But if you understand the risks and would like the potential portfolio diversification and growth one can obtain through emerging markets, it might be worth a conversation with us. We can point you in the right direction, given your individual financial circumstances and goals. Please reach out today.

No one likes to pay taxes, especially on an appreciated investment, but you can minimize capital gains taxes with careful planning. Here are three ideas.

First, hold investments for the long term, which means at least a year. Short-term capital gains (on assets that you have held for less than one year) are taxed as ordinary income; long-term capital gains (on assets that you have held for one year or more) are taxed at rates of 0%, 15%, or 20% in 2021, depending on your tax bracket.

Second, use capital losses to offset capital gains. If you have a losing investment in your portfolio, you might want to sell it and use the loss to offset gains. If you have $4,000 in capital gains, for example, and you take a $4,000 capital loss, the two will cancel each other out, and your tax liability on the gains will be eliminated.

Third, consider low-turnover mutual funds. Any time your mutual fund sells a security at a gain, that gain is taxable, and the law requires mutual funds to pass most of their net gains on to investors. So, when you own shares of a fund, you realize a capital gain when the fund sells a security at a gain (either long-term or short-term, depending on how long the mutual fund held the securities). You can help avoid these types of gains by investing in a low-turnover mutual fund.

Do you need help minimizing capital gains taxes? We can review your portfolio and make suggestions. Call or email us. We’re always here to help.