Tag Archives: holiday

Tax-Loss Season: A Guide To Finding Quality Stocks At Discount Prices

Despite a somewhat volatile year, stocks enter December just about where they rung in the year. However, 2015’s basically flatline performance represents the first year in the last four, where investors collectively won’t have robust gains to cheer about, assuming no massive rally before the ball drops. Even though the S&P 500 hasn’t wavered much until now, it is likely that do-it-yourselfers might be sitting on some substantial losses if they are holding certain stocks. Many marquee-name large-cap companies with household familiarity have taken it on the chin during 2015. Here is a sampling of stocks that have experienced a rather rough year, with their YTD returns as of the last day of November: Whole Foods (NASDAQ: WFM ) – down ~ 40% Wal-Mart (NYSE: WMT ) – down ~ 30% Nordstrom (NYSE: JWN ) – down ~ 30% IBM (NYSE: IBM ) – down ~ 14% Chevron (NYSE: CVX ) – down ~ 20% Procter & Gamble (NYSE: PG ) – down ~ 17% American Express (NYSE: AXP ) – down ~ 22% While now’s a good time to reassess one’s commitment to companies whose market values have tanked, it may also be a good time for those who don’t own them to consider adding them. Let’s look into why. Understanding Tax-Loss Selling As we approach the end of the year, it is common, if not likely, for stocks that have been roughed up during the year to experience even further, artificially inflated inspired, selling. Due to the calendar-year way in which Uncle Sam evaluates our capital gains and losses, most investors will try to balance out gains taken prior in the year with losses. Selling a stock that has depreciated since time of purchase is a sound way of decreasing one’s tax bill come April 15. Since most investors won’t wait until the last minute to do this, it is possible that we are in the midst of tax-loss-inspired selling right now. If I have a $2,000 gain in stock ABC that I sold back in May, but I have a $2,000 loss in IBM, I can sell IBM to offset the gain I took on ABC back in May. Holding period (greater or less than 1 year) will determine specifically how these gains and losses can be offset. And one’s tax bracket will determine the ultimate amount that an investor might have to pay on gains. In any case, taking the time to evaluate your personal capital gains situation is a savvy, necessary move come the end of the year. Tax-Loss Selling Strategies To avoid what’s known as the “wash sale” rule, and keep a position in a stock they like, some investors will “double down” on a losing position in November (or earlier), then sell half the position before the end of the year. The wash-sale rule prohibits the taking of a loss on any security which was purchased 30 days before or after the loss is taken. This strategy enables the investor to lock in the loss and keep the same position heading into the next year. Another strategy may be to agree to part ways with a losing stock, lock-in the loss, but immediately buy shares of another company that does business in the same space or that tends to trade in a similar manner. This is sometimes referred to as a stock swap or stock rotation. One might say, I’m done with Wal-Mart, a mass merchant, but rotate the sale funds over into a stock like Whole Foods, a food-focused retailer. Or the investor might decide retail looks miserable altogether, selling Wal-Mart as a result, then buying into a totally new sector. Whatever the decision, the goal is to minimize calendar year capital gains by December 31, limiting tax liability come April 15. Tax-Loss Buying Strategies Simply put, if a stock is getting hit unnecessarily come the end of the year, it may turn into a real bargain, even if it is experiencing some near-term problems. Alongside your holiday shopping list, make a list of some 2015 “losing” stocks you’d like to own, pick a buy point, set a buy-limit order, and hopefully get your order filled. If the stock looks like a bargain now, don’t wait – the sale may not last! While tax-loss season is generally focused on selling strategies, it’s the buyers that may have the most to gain out of tax-loss season! Original post .

VYM Is Still A Good Bet In The Short Term

Summary Rates will rise, but very slowly, so dividend funds are still in favor. As rates rise, high-yielding funds should generate more attention. Ultra-cheap way to own some of the world’s best companies. The purpose of this article is to discuss the attractiveness of the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) as an investment option. To do so, I will look at recent fund performance, its current holdings and allocation, and trends in the market to conclude if VYM will be a profitable investment going in to 2016. First, a little about VYM. The fund is designed to track the performance of the FTSE High Dividend Yield Index, which measures the investment return of common stocks of companies characterized by high dividend yields. Currently, the fund is trading at $68.52/share, and its most recent quarterly dividend is $.53/share. Since VYM’s dividend payment typically fluctuates throughout the year, I used Vanguard’s website directly to estimate its annual yield going forward, rather than relying on its most recent payment. Vanguard currently has its annual yield listed at 3.14%. With the Federal Reserve set to finally raise rates this month, (according to 81% of fund managers surveyed by Bank of America Merrill Lynch), it may seem to go against conventional wisdom to initiate positions in dividend funds at this time. However, there are a few reasons why I expect VYM to still outperform in this environment, which I will outline below. One, the market has been expecting rate hikes for some time, only to be continuously surprised by the Fed delays month after month. Funds such as VYM have been dropping prior to the Fed’s meetings, only to rebound sharply once the announcement of no increase is made. For example, in mid-August VYM dropped over 10% , partly on speculation that a September rate hike was evident. Since the Fed has delayed raising rates in the following two meetings, the fund has rebounded to the pre-drop levels. While VYM has not suffered a recent steep drop, it has traded cautiously over the last month, gaining under 1%. I view the potential upside to VYM, if the Fed delays yet again in December, as greatly outweighing any downside risk. In fact, while most traders are expecting a hike, they are still not completely sold on it. According to the same Bank of America Merrill Lynch survey , the possibility of a December rate hike after the release of last month’s Fed meeting minutes went down to 68%. Therefore, VYM could be a great hedge if the rate hike is delayed yet again, because the fund should rise swiftly as investors dive back in to capture the high yield. Two, I think VYM will outperform over the next six months even if rates do rise, because the increases are likely to be slow and small, meaning investors will have to wait a long time for yields to rise high enough on short-term bonds to seriously compete with the yield offered by the fund. The annual yield of over 3% will still be seen as “high” for a while, even when the Fed finally decides to begin increasing rates. Coupled with the possibility of capital appreciation, investors would be wise to stay the course with VYM, as I do not anticipate a massive correction in the fund on the first rate hike announcement. Additionally, if the Fed does decide to raise rates, the principal reason behind that decision is because they are beginning to feel more confident about the economy’s ability to stand on its own merits. Under such a scenario, I would expect the largest American companies to do well in this growing economy, and those are exactly the companies that make up the bulk of VYM’s portfolio. Below is a listing of the main holdings of VYM as of 10/31/2015: 1 Microsoft Corp. (NASDAQ: MSFT ) 2 Exxon Mobil Corp. (NYSE: XOM ) 3 General Electric Co. (NYSE: GE ) 4 Wells Fargo & Co. (NYSE: WFC ) 5 Johnson & Johnson (NYSE: JNJ ) 6 JPMorgan Chase & Co. (NYSE: JPM ) 7 Procter & Gamble Co. (NYSE: PG ) 8 Pfizer Inc. (NYSE: PFE ) 9 AT&T Inc. (NYSE: T ) 10 Verizon Communications Inc. (NYSE: VZ ) As you can see from the chart, VYM is made up of some of the biggest companies in the world, and these companies will perform strongly during periods of domestic growth. Therefore, the bulk holdings of the fund should continue to deliver returns, regardless of the Fed’s decision. Of course, investing in VYM is not without risk. While I have laid out a few reasons why I like the fund, it is certainly plausible that the Fed will raise rates more aggressively than anticipated. If rates are raised higher, or more quickly, than investors expect, the market will become more volatile and dividend funds will likely suffer as investors shift into bonds and other fixed income investments that begin to offer higher yields with less downside risks. Also, while I laid out why continued low rates will be beneficial overall for the fund, VYM does have about a 15% exposure to the financials sector. This is a sector that should actually outperform in a higher rate environment, since financial companies like banks are able to charge more for the loans they lend out, typically leading to a higher spread, and therefore profits, for the firm. If rates stay low, that sector could be a laggard, which will weigh on the overall performance of VYM. How much this will impact the fund is unclear, but it is a risk to be aware of. However, I do not expect either of these scenarios to play out. Fed chairwoman Janet Yellen has made it clear that the Fed will take a “gradual approach” to hikes to ensure the market is not disrupted. Also, I do not expect the financial sector to drag on VYM, as the sector has rallied, and all odds do point to a hike in the near future. Bottom line VYM provides investors with diversified exposure, access to some of the biggest companies in the world, all for an ultra-low fee of .10%, which, according to Vanguard’s website, is lower than that of 91% of comparable funds. With rates expected to stay at historically low levels, even after the Fed’s initial hikes, VYM’s yield of over 3% will continue to attract investor interest in 2016. The fund will also benefit from increased consumer spending, as it has a 20% weighting of direct exposure to the U.S. consumer. While recent consumer spending has not been strong , I see tremendous upside to that statistic, as hourly wages for Americans have finally started to rise . This will bode well for future consumer spending, especially going into the holiday season, and VYM will be a direct beneficiary of this trend. With a growing U.S. economy and wage growth, continued low rates, and low management fees, I would encourage investors to take a serious look at VYM.