Focusing on What You Can Control

With everything going on in the world right now, the markets somehow keep going up. Brandon Averill, Erik Averill and Justin Dyer talk about the relationship of risk and return, how fast a bit of information could change the markets, and to make sure that you have clarity around your plan. Here is a breakdown of the 3 key takeaways from the episode:

1. Is it luck or skill? “The idea of arrogance to be able to pick stocks. You have to also filter that through whether it's luck vs skill and nine times out of ten, it's probably just luck, you know, masquerading as skill and people convince themselves of that unfortunately over time.” To this point that Justin made, there are over 150,000 Chartered Financial Analysts around the world constantly searching for ever decreasing outperformance. For the individual investor, the deck is stacked against you on Wall Street. Not only do you have to know when to buy, but what is your price target for exiting? How are you evaluating the fair value of the company? Erik puts it this way: “so as an individual investor, it sounds really good that hey I want to put some money into a specific company, but it's just one side of the trade. I think that's what we always forget about as investors. It's not only when am I going to purchase it? Is this at the right price? Is this the right time to get in but when when should I sell and so I think it becomes a very dangerous time to try and front-run specific companies of what you think your crystal ball is going to say, what the world is going to look like 3 months from now, 6 months from now, a year from now.” There is a reason the data keeps proving over and over that retail investors underperform the broad market index.
2. The current worry for many investors are future tax rates. “Markets will take all available information and price that in and what we're seeing is that, right now the information certainly points to a split government. And so, you know, I'm still getting all these calls: ‘What’s Biden going to do? Am I going to be paying 75% taxes? The economy is going to fall apart, markets are going to fall apart.’ But, I think what the market is telling us is that with the split government, we’re probably not going to see a lot of tax policies that maybe Biden talked about previously actually get enacted and I think there's just a lot of misinformation out there and in the public media.” Brandon explains well how the financial media’s purpose is to gather eyeballs and appeal to the emotions of investors. This is what drives their advertising revenue so the incentive is to sensationalize.
3. How does a team of highly skilled wealth managers actually minimize taxes? They focus on what they can control. Tax-loss harvesting at optimal times and asset location. Placing tax inefficient assets in deferred accounts and tax favorable assets in taxable accounts. Justin explains when and how you should be doing tax-loss harvesting: “We are actively looking for the opportunities to tax-loss harvest and that's not something we just do at the end of the year, which is something you might hear from your Average Joe Broker right now where it's the end of the year: ‘Let's sell a position that's down’, well, nope, we have actual technology in place that allows us to do that throughout the year. Earlier this year was the time to do it when there was the COVID crash in March, right? We took advantage of that and harvested some losses. And book those for your tax benefit. You know other things we do is have some efficient asset location optimization. So we hold tax-efficient assets and income and taxable accounts and tax inefficient assets and tax-deferred accounts. And we've talked ad nauseam about municipals and the benefits that munies have within a portfolio.” This tax-loss harvesting Justin describes can be carried forward year after year allowing future gains to be realized without generating tax liabilities.