Tax-Smart Idea for Managing Your Portfolio #4:

February 27, 2009

Put Losses to Work

At times, you may be able to use losses in your investment portfolio to help offset realized gains. It’s a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it. Your realized losses in a given tax year must first be used to offset realized capital gains. If you have “leftover” losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years.

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

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Tax-Smart Idea for Managing Your Portfolio #3:

February 25, 2009

Manage Investments for Tax Efficiency

Tax-managed investment accounts are managed in ways that can help reduce their taxable distributions. Your investment manager can employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.


Tax-Smart Idea for Managing Your Portfolio #2:

February 23, 2009

Consider Investing in Municipal Bonds

Municipal bonds, or “munis” as they are frequently called, are bonds issued by state or local municipalities to fund public works projects such as new roads, stadiums, bridges or hospitals. A municipal bond can also be issued by legal entities such as a housing authority or a port authority. For this reason, municipals can be an excellent way to invest in the growth and development of your community.

In addition, because the interest earned on municipal bonds is exempt from federal income taxes and may be exempt from state and local taxes (if they are purchased by residents of the issuing municipality), munis have the potential to deliver higher returns on an after-tax basis than similar taxable corporate or government bonds. What this means is that although the interest paid on municipal bonds is typically a lower percentage than is paid on taxable bonds, because it is tax free, it is, in effect, not as low as it appears. A simple calculation known as the “taxable-equivalent yield” can be used when considering an investment in a municipal bond.

For instance, if your income tax rate is 35%, a municipal bond paying 5% interest is actually a better investment than a taxable bond paying interest at 7.7%. Thus, for investors in a high tax bracket, the benefits of using municipal bonds in a fixed-income portfolio can be significant. Municipal bonds are subject to availability and change in price. Subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.


Tax-Smart Idea for Managing Your Portfolio #1:

February 20, 2009

Invest in Tax-Deferred and Tax-Free Accounts

Tax-deferred investments include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans, traditional individual retirement accounts (IRAs) and annuities. In some cases, contributions to these accounts may be made on a pretax basis or may be tax deductible. More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs and Roth 401(k) savings plans are not deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you have held the account for at least five years and meet the requirements for a qualified distribution. Unless certain criteria is met, Roth IRA owners must be 59 ½ or older and have held the IRA for 5 years before tax-free withdrawals are permitted.

Please check back for the next Tax-Smart Idea in our blog

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.


Time Is Your Ally When It Comes To Your Portfolio

February 19, 2009

Clearly, time can be a better ally than timing. The best approach to your portfolio is to arm yourself with all the necessary information, and then take your questions to a financial advisor to help with the final decision making. Above all, remember that both your long- and short-term investment decisions should be based on your financial needs and your ability to accept the risks that go along with each investment. Your financial advisor can help you determine which investments are right for you. Please consider the following points:
1. Historically, a buy-and-hold strategy has resulted in significantly higher gains over the long run, although past performance is not indicative of future results.
2. A big risk of market timing is missing out on the best-performing market cycles.
3. Missing even a few months can substantially affect portfolio earnings.
4. Market timing strategies — which range from putting 100% of your assets in or out of one asset class to allocation among a variety of assets — are based on market performance expectations.
5. Market timing is best left to professional money managers.
6. Though buy-and-hold is a smart strategy, regular portfolio checkups are necessary.
7. Time horizon is particularly important when determining asset choices.
8. Riskier investments are more appropriate for longer-term goals, and as goals get closer, portfolios should be rebalanced.
9. Even in retirement, portfolios should contain investments for earnings to keep pace with inflation.
10. You should consult your financial advisor when making asset allocation decisions.
© LPL Financial, created by Standard & Poors
Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.