Market Reflection, The Wash Sale Rule and Be A Blessing

Market Reflection, The Wash Sale Rule and Be A Blessing

December 07, 2023

Market Reflection: As we approach 2024, I take time to reflect on an “interesting” 2023.  The headlines were dominated by Chinese spy satellites, negative politics, rising rates combined with a slowing economy, the Russian/Ukrainian conflict and finally a continuing war in the middle east.  All of that said, Mr. Market shrugged it off.  The famous economist, John Maynard Keynes once said, “The market can stay irrational longer than you can stay solvent.” Meaning, no one is bigger than the market, and no matter how right you think you are about a certain investment or trend, the market doesn't care.  Here is where we are as of the end of business, Wednesday, December 6th, 2023:

NASDAQ  +35.16%

S&P 500 +18.49%

Dow 30  +8.77%%

Gold Spot price $/0z. +10.32%%

S&P U.S. Aggregate Bond Index +3.31%

Year To Date Performance as of 12/06/23   Source: Wall Street Journal, Marketwatch, SPglobal.com

In October, I wrote about the war, and God willing, it appears to at least have subsided for now.  Surprisingly, it did not affect the markets and in particular, oil as much as I thought it would.  Of course, things could escalate quickly and it is a headline that I keep my eye on.  

In 2024, I hope to see interest rates hold if not fall which would be a big headline.  But I expect the upcoming election in November of 2024 to dominate our daily news.  It’s hard to tell at this point how the election may affect the markets either positively or negatively, however, I do fully expect volatility to increase.  I have been wrong before and I will certainly be wrong again, but I always tend to err on the side of caution. 

The Wash Sale Rule: Enough about the future.  I want to end the year with an idea that may help you save on your taxes:  Tax-loss harvesting.  The name itself gives me chills.  Who likes taxes or losses?  However, using the “wash sale rule” is a common tactic to save investors taxes.  Here’s an example:

In a taxable account, you sold an investment for a gain.  Normally, depending on how long you held the investment, you would either owe capital gains tax at your income tax rate (short term gain under one year) or the capital gains rate of either 15% or 20% on long term gains (held over one year).  The rate for long term gains depends on your income.

Regardless, you have assumed the gain by selling the investment.  For this example, let’s assume that you have another investment that is an unrealized loss, meaning, you are still holding the investment, but it has gone down in value.  Using the “wash sale rule” you can sell the losing investment and offset your gain with your loss.  No one likes taking a loss but, in this case, you are saving yourself tax liabilities that you would otherwise owe.  What if you like the investment though?  Using the wash sale rule, you can buy back the same investment thirty-one days later and still assume the loss and establish a new basis.

Let’s be clear, the wash sale rule only applies to “taxable” money also known as non-qualified money.  IRA’s, 401-k’s, any type of retirement plan are known as qualified money and no matter what, you will owe tax on those funds when you withdraw them.  Inside of those accounts, you can buy and sell at will and it does not matter until you pull the funds out.  The taxes owed are deferred until you withdraw which is one of the great benefits of qualified accounts.

Now is the time to assess your realized and unrealized gains and losses in your non-qualified accounts along with any outside investments such as real estate.  If you have realized gains, consider selling losing investments to offset the gain.  In thirty-one days, reconsider the investment and either move on or reinvest if you still like the investment.

If you need help with considering this idea, give Kim a call to set up an appointment.  Bring with you your list of realized gains and losses for the year along with investment statements that normally show unrealized gains and losses.  I also highly recommend you have this idea handled professionally as there are some loopholes that if not closed, could negate the rule.  Our office number is 731-285-0097 and you can email Kim at kim@daviswealthservices.com.

Be a Blessing: In spring of 2010, I attended my first national conference with my former broker dealer.  I had just started my investment firm and I was both nervous and anxious.  The conference was overwhelming with four full days of continuous classes and presentations.  It was great knowledge but as I approached the last session on the fourth day, I could not take any more taxes, investments, insurance, and planning.  The conference planners were good about sprinkling in self-improvement sessions on stress management, sleep, diet, exercise, etc…  As I scanned the syllabus, I found a session that sounded right up my alley.  “Nerves of steel” was the title and the the description mentioned “focus”.  I played golf at the time and thought, “what the heck.  Maybe this will help my game.”  The presentation was fifty minutes of motivational stories by Dr. Kevin Elko.  By the end, I had cried, laughed, and questioned myself on what is really important in life.  Looking back, this chance occurrence had literally changed my life.  The stress’ of starting a new business and the question of what tomorrow would look like had been alleviated and I started following and studying Dr. Kevin Elko’s teachings.  Interestingly, Dr. Elko is a sports psychologist and got his start advising NFL general managers on the psychology aspect of the players they were considering drafting.  Later, Dr. Elko was hired by Nick Saban, the head coach of the University of Alabama football team and the rest is history.  I listen to the Monday morning cup of inspiration weekly, and his stories are always a reminder of what really matters in life.  I encourage you to sign up and give it a try.  It's free and you can find it here Monday Morning Cup Of Inspiration.  Regardless, one of his famous sayings is “I’m not looking for blessings to come into my life; I’m looking to be a blessing in someone else’s life.”  He often mentions “finding your blessing” and that it should be your daily goal to find at least one blessing.  I have followed this advice and to be honest, sometimes it is hard to do.  I even get anxious about it as the day ends.  I share this with people a lot because this practice has really helped me over the years.  In my opinion, giving without any expectations in return is one of the greatest things you can do in your life.  Whether it’s buying a stranger a cup of coffee, a “blessing bag” for the local blessing box, a random compliment or just listening to someone who needs an ear, you never know what others are going through and you are making a positive impact in their life.  You are a blessing.

We just finished Thanksgiving and I thanked God for my blessings and pray that I can continue to pay them forward.  I hope this holiday season, you find your blessing and give thanks for your health, wealth and happiness.  We are all truly blessed!

Again, with the year end fast approaching, if you need an appointment, please call the office at 731-285-0097. 

Until next time… Cheers!