How to take portfolio gains

 

With the Dow reaching an all-time high of 25,000 last week, you may be wondering if now's a good time to sell and take profits. Common reasons people hesitate in taking action is the realization that capital gains tax will be owed, and after selling, where on earth do you put the proceeds?

It's also hard to justify selling stocks right now when the bull market appears to have no end in sight. The S&P 500 is up 300% since the 2009 low and running strong in its 9th year. The additional stock market stimulus brought on by the tax cuts along with massive cuts in regulation only serve to advance this market further. So why sell?

It's true that identifying and remaining invested in a bull market is incredibly important. It's equally important to not lose sight of your goals, time horizon for the money, and tolerance for risk. It may turn out that the market turns before you know it, forcing you to sell in a period of high volatility, when spreads widen (the difference between the asking price and the bid of a stock); you might lose out on gains you would have otherwise enjoyed.

Current economic strength remains a contributing factor for continued bullishness. GDP growth is positive and the unemployment rate has improved significantly from 9 years ago. However, there are reasons for caution. The Bank of England and the Bank of Japan may discontinue their bond purchase program this year. The U.S. will install 5 new Federal Reserve board of governors with varying viewpoints, including the new Chair, Jay Powell. This will be the first time a Fed Chair will not have a Ph.D. in Economics.

So, instead of waiting for an inevitable change in market trend, consider taking action now. For those of you with a large stock position, sell and diversify into other stocks. Indexes, or collections of stocks, may fare better in a declining market. You can also identify shares in your portfolio with the highest cost-basis and sell those first. This will reduce your tax liability and portfolio risk in the same way. Selecting which tax lot to sell was originally going away with the new tax bill but was put back in at the last minute. Take advantage of this before the law could change again.

Whatever you do, don't spend the proceeds or leave it in cash, since that's not the purpose of this exercise. Target asset classes in your portfolio that could use some bumping up. Bonds, emerging markets, and commodities are the "forgotten" asset classes and they should be reconsidered.

Do you need help identifying the market trend or tax-wisely rebalance your investments? At Eureka Wealth Management, I work with my clients to make smarter decisions with their portfolio. I employ trend analysis which may help identify which asset classes could be most advantageous. Call today for a free review of your portfolio at (760) 537-0791 or visit eurekawealthmanagement.com.

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(760) 537-0791

©2017 BY EUREKA WEALTH MANAGEMENT.

Eureka Wealth Management is a registered investment adviser in the State of California. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.