Two different shoe salesmen ventured into new territories in an under-developed country. Upon scoping the landscape, the first salesman telegrammed back to the home office requesting an immediate transfer. “This is a lost cause” the salesmen stated, “Not a single person in this country wears shoes, they all go barefoot. Please send me somewhere else” The other salesmen recognized the same and immediately scurried off to the telegraph office stating, “Send more product immediately, every single person in this country is a potential customer!”

This story was relayed to me early in life and it is now something I teach my children. Life is all about perspective and regardless of who you are, where you are, or what you’re doing, at times you will face challenges. Most of us have learned that during difficulties it is critical to seek out the opportunities. It is this perspective which makes the difference between those who succeed or those who remain stuck behind whatever roadblock they currently perceive as insurmountable.

With only a few days remaining in September it’s safe to say 2022 has so far been downright lousy when it comes to investing. Stocks, Bonds, Gold, and even the Crypto world is feeling the pain from what I believe to be poorly executed Fed and Government policy. Recent rate hikes have added fuel to an already strong US Dollar, sparking significant currency declines among some of the world’s largest fiat reserves. As nations around the globe flock to the US Dollar for safety and now a hefty interest rate, multi-national US corporations pay the price. Furthermore, the additional interest now paid by the US to fund the current debt levels will again be financed by the US taxpayer at some point down the road. Whether intentional or not, I believe government stimulus, loan forgiveness and increased interest on the national debt will fall upon tax paying citizens and may result in one of the largest wealth transfer events in generations.

Despite all of these challenges I do believe we will eventually right the ship. With the destruction in commodities during the month of September, we’ll be looking for a big month over month drop in the CPI which may spark discussion regarding the Fed’s next moves. It is my belief that despite everyone’s concern regarding long term inflation, the next challenge on the horizon is actually deflation and higher rates of unemployment, however, that’s another topic for another day. Needless to say, I continue to be in the camp that, at some point soon, the Fed will be either forced to pivot or have the data to pivot, sparking a significant oversold bounce in the equity markets.

While markets are awaiting any hint of good news, there is important steps to be taken to take advantage of these depressed prices and it isn’t what you’d expect.

While the old adage ‘buy low sell high’ rings true more than ever, that is actually not what we’re talking about at this moment rather taking the unique opportunity to harvest losses and tucking them into our back pocket for future use. You see, not only are stocks down this year but bonds have seen one of their largest declines in decades. In fact, S&P US Aggregate Bond Index** is experiencing weakness it hasn’t seen since the early 1930’s, almost 100 years ago! For taxable accounts we’re looking to sell down a few of our bond positions, taking those losses and immediately moving into new bond positions with a similar profile. This means that for no cost, we’re looking to move from one bond to another and ironically, save money to boot. This saved money doesn’t just come from lower fees, which is a nice kicker, but the primary reason is to harvest the loss for taxes and look to offset any gains in the future. Think of this as a mulligan that you have in your back pocket to be used when times improve. It is one of the few shinning lights from a down market and it’s something to consider taking advantage of.

For those with Retirement Accounts thinking the non-retirement Tax Harvesters are having all the fun (sarcasm), there’s something in store for you as well, however, it’s not nearly as glamorous. As we roll into year end, we will begin going through each client to consider Roth conversion. While we’ve talked about this many times before it may be worth a brief rehash. A Roth Conversion is when money is converted from a traditional IRA into a Roth, paying taxes in the year of the conversion. While the current income tax is the concern, once funds are moved into a Roth they are never taxed again. In addition, these funds are not subject to the age 72 Required Minimum Distribution, nor are they taxed to beneficiaries. Pursuing this when investments are down gives the potential added benefit of moving funds prior to their re-appreciation thus moving more ‘net’ money than one could have moved in a year when that same investment was up.

There are a few other, more obscure strategies to consider but this is good for now. The key is to remember that even when difficult times arrive, there are opportunities to pursue and often it is these opportunities that can make a lasting and meaningful impact.

Until next time,
Quint
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Disclosures

Joule Financial, LLC is registered as an investment adviser with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability. A copy of Joule’s current written disclosure brochure filed with the SEC which discusses among other things, Joule’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov

 

This does not constitute an offer or solicitation. This information should not be considered investment advice. Opinions expressed reflect the judgment of the author and are current opinions as of the date appearing in this material only. While every effort has been made to verify the information contained herein, we make no representations as to its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance does not predict future results. Content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. All investing involves risk, including the loss of some or all of your investment.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index.

**The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.

This document may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,”“anticipate,”“should,”“planned,”“estimated,”“potential”and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’ operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples.