Capital allowance? Be sure to follow it in 2022


My, oh my, the markets acted…perky. I’m not particularly surprised because, well, we’ve been waiting for a while. But this is where the rubber hits the road, where investors prove their mettle, and what makes the stock market so much more fun than just buying Treasuries and stopping there.

First of all, nobody likes losses, especially after so many years. But market volatility can create opportunities to improve your after-tax returns or perhaps recoup stocks or funds that previously seemed overvalued. Here are three suggestions on what to watch for in your portfolio if the markets simply fall or rebound more than usual.

1. Monitor the performance of your portfolio

Market declines are opportunities to “stress test” portfolios. Monitoring your holdings during periods of volatility will help you know how much risk you might be taking.

Pros look at upside and downside capture ratios to see if funds are doing well because of their skills or because the markets have worked in their favor. Ideally, we want funds and portfolios to profit more from upswings in the market and down less than the market when markets go down. While a few days of market volatility won’t yield anything close to a full answer, it’s worth investigating further if your portfolio is falling more than an appropriate benchmark, or even more than that. what you expected.

2. Do you have harvestable losses?

If you have a taxable investment account, you can often reduce your capital gains taxes or even some of your taxable income by selling your losers and swapping them for similar securities. For example, you can switch from one index fund to another managed by a different company. Professionals call this “tax loss harvesting”.

Some investors prefer to do this closer to the end of the tax year, but managing losses should be a regular routine for any taxable account. The rules are a bit complex, but look for losses large enough to make the swap transaction costs worth it. If you see any, talk to your tax advisor or other financial professional.

3. Keep your balance

You should have a preferred or default allocation between stocks, bonds and a cash reserve that reflects your perception of risk and the return you need to achieve your financial goals. This allocation should be firmly fixed in all markets, at least until your goals or needs change. If you’re panicking about the state of your wallet or worrying too much about the future, you need a new financial plan.

If you have this capital allowance, you need to make sure you follow it. Choppy markets lead to unbalanced portfolios, and unbalanced portfolios can lead to unnecessary surprises later. The tech boom has led many portfolios to be grossly overweight specific stocks or perhaps the preferred ratio of stocks to other components of your net worth. By periodically rebalancing your portfolio, you are buying what is underrepresented in your portfolio and reducing what is overperforming.

Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a member of the Forbes Next-Gen Advisors 2018 list and a finance professional at Avantax Investment ServicesSM. Evan leads a team of retirement transition strategists for clients who consider themselves the “millionaire next door”. He can be reached at 941-500-5122 or [email protected] To learn more about his ideas, visit Securities offered by Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered by Avantax Advisory ServicesSM, insurance services offered by an insurance agency affiliated with Avantax. 8225 Natures Way, Suite 119, Lakewood Ranch, FL 34202.


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