Isn’t this the year to do some tax harvesting?
Paul acknowledges he has mixed feelings about tax harvesting.
“It can be of short-term, limited use in lowering clients’ tax exposure and a way to make some lemonade from lemons in a portfolio,” Paul said. “But it’s still acknowledging that you bought some lemons.”
More importantly, he said, tax harvesting isn’t nearly as effective in generating tax alpha over time as asset location or other tax-smart investment strategies.
How are younger investors—millennials and Gen Z members—faring?
Advisors, take note: “This is an opportunity to make the case to younger investors that picking stocks they think are great is a bad way to manage savings they’re going to want someday to buy a house, have a child and retire,” Paul said. “Repeat the lesson: investing in a diversified portfolio is the key to long-term success.”
He said younger investors with holdings concentrated in stocks and options may find themselves without many good choices right now. Tax harvesting, of course, may help somewhat. But many are seeing their options fizzle and realizing that finding a higher-paying job isn’t as easy as it was a year ago.
In all, young investors “might get serious and put some money with an advisor as opposed to just having fun with it,” Paul said.
Paul empathizes with advisors whose clients can’t stop checking their mobile apps for market news and account values daily or hourly, only feeding investors’ anxiety—and making them more prone to rash moves.
Many advisors have clients who are coming up to retirement. What can advisors tell them?
Be clear and firm, even if the advice is hard for clients to swallow: Keep working.
“Inflation is eating away at their savings, and their portfolio values may be down 10% or 15%,” Paul said. “Working has benefits. You can contribute more to retirement funds and get employer contributions, too.
“Working longer also reduces the number of years you expect your retirement savings to cover and helps balance the effects inflation has had in the past year in eroding your savings.”
Any final words?
The index funds that Bogle pioneered were, for a long time, the investment that provided long-term investors the best returns at the lowest cost, Paul said. And they are simple, convenient and practical.
Today there are more options—like exchange-traded funds (ETFs)—that can get investors similar exposure to the overall market with greater convenience than mutual funds—making the value of financial advice even higher.
Advisors earn their fees and referrals when they create financial plans that suit investors’ risk tolerance and timelines, implement those plans and then meet with their clients regularly. That’s never been as important as it is today.
Jack Sharry is co-chair of MMI's Digital Advice Community, a member of the Next Chapter Executive Leadership Advisory Board and co-chair of Next Chapter Leadership in Action. He hosts the WealthTech on Deck podcast, is the author of the book Authentic and Ethical Persuasion, and is executive vice president of LifeYield.