From the Desk of Charlie McCullough
As the year comes to a close, I look forward to a restful and enjoyable time with my family and friends. Lisa and I are anticipating having the whole family together for the holidays as our son, Sheldon comes back from his senior year at UW-Madison, and our daughter, Callie is home from her first semester of her freshman year in college.
In addition to family festivities, there are a lot of year-end housekeeping details with regard to our investments. Just a couple of weeks ago, I met with my advisors at Financial Fiduciaries to discuss any considerations before the end of 2015.
The market drop in the third quarter led some fear driven investors to sell their mutual funds. When a mutual fund has a large amount of holders selling their shares, it forces them to liquidate their profitable positions that they would otherwise prefer to hold. Due to the panic selling, this has triggered capital gains in many mutual funds. Mutual funds usually distribute these capital gains in December. If you hold these mutual funds in a taxable account, Uncle Sam and possibly the state you live in, will want their share of the gain too.
This means if an investor was not paying attention, they may end up with a bigger than expected 2016 tax bill because of these distributions. Thankfully, I have the fee-only advisors at Financial Fiduciaries to keep track of these considerations for me. My advisor recognized the issue and then balanced out the sell off activity to reduce the tax impacts of the Q3 market volatility.
I was told that this kind of development is also a reason why it is a good idea to put instruments like mutual funds (over which there is little tax control) inside IRAs or other tax deferred accounts and use instruments where there is more tax control in taxable accounts. In this way, developments like that of Q3 have no impact.
With a market that is constantly shifting, it is so important to have an advisor on my side that I can trust. The team at Financial Fiduciaries always ensures my portfolio is maximized for the most profitable end-result and consistently guides in making sound financial decisions that will help me reach my retirement goals. I am thankful for another year with them on my side.