Welcome to the August edition of FAQs and RAQs!
In this issue, we address client questions—some Frequently Asked, and others Rarely Asked.
FAQ: How will the Presidential Election affect the stock market?
To say this question is Frequently Asked is an understatement!
There’s a lot to discuss regarding elections and the stock market. In fact, we cover it in detail here.
But in short, there are two things investors often get flipped in their minds:
1. You might think elections drive the stock market. But it’s the opposite: the stock market drives elections. If the market is up heading into a Presidential election, the incumbent party typically wins.
2. You might believe the President has the power to influence the market. While that’s true, the market often has the upper hand. If a President’s policies tank the market, falling stock prices may force a change of course—especially if they want to be re-elected.
Democracies are self-correcting. If you own stocks over the appropriate time horizon—longer than an election cycle—then the results of an election shouldn’t be a major concern.
RAQ: As an investor, should I be rooting for a strong dollar or a weak dollar?
Ask one hundred Americans if they’d prefer a “strong dollar” or a “weak dollar,” and we’re willing to bet all one hundred will say “strong dollar.”
But the answer isn’t that clear-cut for investors. In fact, there are several benefits to a weaker dollar for portfolios. It tends to boost returns on overseas assets and profits for U.S. companies that export overseas. A weaker dollar is also often present in a “risk-on” environment for stocks.
In short, while we wouldn’t necessarily root for a weaker dollar, it can actually benefit your portfolio.
RAQ: What is Tax Gain Harvesting?
You’ve likely heard of “Tax Loss Harvesting”—selling investments that are down in value to offset taxable gains elsewhere in your portfolio.
But there’s also “Tax Gain Harvesting.” This involves using years when your taxable income is modest to “clean up” your portfolio by selling positions that have appreciated in value. This strategy is often employed during the so-called “trough years” after retirement, when you no longer have earned income but before Social Security and RMDs have kicked in. If your income is low enough, you may qualify for the zero percent tax bracket on capital gains—a great opportunity to tidy up your portfolio. As always, consult your tax preparer for more details.
Have a question? Drop us a line at carlsongroup@rwbaird.com. We’d love to hear from you!
Baird does not provide tax advice. All investments carry a level of risk, including loss of principal. PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS.