In Newsclips, we scan the headlines and dive into the latest academic insights to help you become a sharper, more informed steward of wealth. This month, we cover the repeated folly of Wall Street stock market predictions, using investment portfolios to offset real estate capital gains, and yet another new entrant to the burgeoning ETF space.
MarketWatch: The S&P 500 at 4,800? That’s what some Wall Street experts predicted — for 2024
In December 2023, leading Wall Street firms predicted the S&P 500 would end 2024 within a range of 4,257 to 4,950. However, the index closed at a surprising 6,090 by December 6, 2024, highlighting the challenges and limitations of market predictions. The article emphasizes the importance of treating such forecasts as context rather than certainty, urging investors to focus on long-term strategies instead of short-term market calls.
Flatrock’s Take: For some reason, the line “Oh no! We suck again!” from Adam Sandler’s The Waterboy always produces a chuckle. Maybe its because we’re both from San Diego, where the hometown teams have perennially struggled. But the sentiment can just as easily be exclaimed by followers of Wall Street’s annual stock market forecasts. In 2024, they sucked…again. We covered this in our Fourth Quarter 2023 Client Letter how they whiffed, often substantially in their annual forecasts from 2018 through 2023. Add 2024 to the list!
It’s that time of year where our inboxes (and likely yours) are filled with invitations to hear strategist views at luncheons or webinars. These perspectives can be entertaining but there’s nothing to suggest they improve returns. If anything, they lead to greater taxes. Accordingly, recognize you may more likely “win the cocktail party” with strategists and their forecasts. But are you more likely to win the race of better outcomes? There’s no data that says so.
AQR: Can Capital Losses Offset Gains from the Sale of Low-Basis Real Property?
Many real estate investors face the challenge of managing the tax implications of gains from the sale of low-basis properties, which often include a mix of gains taxed at different rates. Capital losses from stocks or other assets can be used to offset certain types of gains, such as those taxed at the 25% rate for unrecaptured depreciation or the 20% rate for property value appreciation, but not gains taxed as ordinary income (e.g., depreciation recapture exceeding straight-line depreciation). Understanding the specific tax treatment of each component of gain is essential for optimizing tax strategies and minimizing liabilities.
Flatrock’s Take: You know what will bomb at cocktail hour? Talking about tax efficient investing! But, deferring capital gains through tax loss harvesting – in stocks, bonds and funds – is like getting a free loan from the government. You defer paying taxes and earn interest on the savings, often for decades into the future.
But you (and your advisor) need the whole picture. Why does this matter? Because most household have embedded unrealized gains throughout their nonfinancial assets like primary residences, vacation homes, private businesses, and yes, even investment real estate. Investors should be aware of the multitude of ways their investment portfolio can be used to optimize and defer taxes on the sale of real estate investment property.
Wealth Management: Bridgewater Partners With State Street For ‘All Weather’ ETF
Bridgewater Associates is collaborating with State Street Global Advisors to launch the SPDR Bridgewater All Weather ETF, bringing Bridgewater’s renowned All Weather risk-parity strategy to the exchange-traded fund market. This partnership reflects a broader trend of hedge funds entering the $14 trillion ETF space, attracted by benefits such as ease of trading, tax advantages, and generally lower fees.
Flatrock’s Take: Bridgewater Founder Ray Dalio created the All Weather portfolio with the intention of managing his family’s wealth in a way that would eliminate the need for precise market timing or forecasting, which he believed to be inherently unreliable.
We agree wholeheartedly (especially for wealthy families!) Market timing and forecasting is especially brutal after taxes. We much prefer to build a resilient, tax-efficient portfolio that can excel across a variety of economic “seasons”, while also maintaining a Protective Reserve for the unexpected. As we often say, preparation over prediction.
In addition, the world’s largest hedge fund manager entering the ETF space holds another lesson. The ETF wrapper offers substantial structural advantages such that even the largest and most entrenched managers need to be in the ETF game. Indeed, much of our current research efforts are looking at ways the ETF wrapper can lead to greater tax and fee efficiency across asset classes and strategy types. As always, stay tuned.
If any of these topics spark a conversation, we’d be delighted to chat. Markets fluctuate. Priorities change. We’re here to help.
Disclosures
Flatrock Wealth Partners LLC (“Flatrock”) is a registered investment advisor.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Flatrock does not offer tax advice. You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
External links may contain information concerning investments, products or other information. Flatrock is not responsible for the accuracy or completeness of information on non-affiliated websites and does not make any representation regarding the advisability of investing in any investment fund or other investment product or vehicle. The material available on non-affiliated websites has been produced by entities that are not affiliated with Flatrock. Descriptions of, references to, or links to products or publications within any non-affiliated linked website does not imply endorsement or recommendation of that product by Flatrock, LLC. Any opinions or recommendations from non-affiliated websites are solely those of the independent providers and are not the opinions or recommendations of Flatrock, which is not responsible for any inaccuracies or errors.
Please see our website https://www.flatrockwealth.com/disclosures