“What is your best idea right now?” This is a real question that somebody asked me when I was a couple of drinks in at a party. It threw me off guard. Capital markets were not at the forefront of my mind at the time. I was thinking more about if I should have a cocktail, a beer or a water for my next round.
Despite the situation, I instinctively went into my overall view of capital markets. I went over expectations regarding economic drivers, political drivers, market sentiment, and how all those things can impact categories of stocks moving forward. I gave a market forecast and the theme of how my managed portfolios are currently positioned. It wasn’t the worst answer, but it certainly wasn’t the best answer.
The best answer, and my best idea is to invest broadly in stocks for the long-term. My expectation is that economic progress will continue to march forward, and that per capita standard of living will continue to rise, and that over the long-term stocks will continue to be the greatest investable reflection of this advancement/growth. It is my expectation that stocks will continue to provide the greatest combination of return on investment and Liquidity over long-term periods compared with other asset classes. A diversified portfolio of stocks is my best long-term idea.
Lastly, “what’s your best idea right now” is a bad question. An investor asking that question is begging to be sold a product/hot tip/gimmick. There are 1,000s of salesmen out there that will sell you the greatest stock pick, insurance policy, annuity, hedge fund, etc. if that is what you are looking for. Good wealth management is about philosophy and process, not a silver bullet.
Is a front load of 4.5 percent a normal percentage when purchasing mutual funds?
Answer:
4.5% is not unusual for mutual funds, however I would never recommend buying a fund with such a high load charge. There are many mutual funds that have no load charges to choose from, or which have an option to waive the load under certain circumstances.
If your adviser suggests a mutual fund with a high front load charge, I recommend that you ask them the following two questions.1) How does the load charge on this mutual fund impact your compensation? 2) Wouldn’t it be in my best interest to invest in a mutual fund that does not charge a frontload percentage?
Advisers that recommend frontloaded mutual funds to their clients tend to be Registered Representatives (brokers) paid on commissions/transactions. Registered Representatives are not legally obligated to make recommendations they believe are in their client’s best interest. Registered Representatives are legally obligated to make recommendations which are suitable for their clients.
I recommend investors seek out Investment Advisers operating through an RIA (Registered Investment Advisory), because they are fiduciaries to their clients. As fiduciaries Investment Advisers are legally obligated to make recommendations they believe to be in their client’s best interest.
Question Headline:
What is my capital gains tax liability if I sell two homes to buy one?
Question Body:
My spouse and I plan to sell both our primary residence, which we’ve lived in for 19 years, and a second vacation home, that we’ve only owned for 10 months, to purchase one home that costs about the same as the existing two homes combined. What would our tax liability be with this type of transaction?
Answer:
For a married couple selling primary residence, there is no capital gains taxes for up to $500,000 of profit. This has been the case since 1997 when the Taxpayer Relief Act (TRA) was passed. Example: Bill & Suzie buy a home as primary residence for $500,000, and 5 years later sell the home for $800,000. They have capital gains/profit of $300,000, but their gains are below the $500,000 threshold and therefore do not pay any capital gains taxes.
For a vacation home or second property the capital gains tax liability is different. Typically profit from such real estate sales will be subject to either short-term or long-term capital gains tax. One exception would be if the seller is a “house-flipper by trade”. In that scenario profits from a sale would be treated as ordinary income. Additionally, the length of time an owner has held a second property will factor into the percentage of capital gains tax owed.
