PEEK OF THE WEEK
August 6, 2018
Leif Hagen & Donna Roberts
The Markets
Capital gains tax reform comes
with a big price tag: $100 billion over 10 years.
A capital gain is any increase
in the value of an asset, such as an investment, a home, land, etc., between
its purchase and its sale. The amount of a gain is determined by subtracting
the purchase price from the sale price.
Last week, the White House
proposed capital gains be adjusted or ‘indexed’ for inflation before they are
taxed. Princeton Professor Alan Blinder explained the idea in The Wall Street Journal:
“Why index gains? Suppose you own a
stock for many years, during which time overall prices have doubled because of
inflation. Over the holding period, the value of your stock also has doubled.
When you sell, the proceeds have precisely the same purchasing power as the
original purchase. There’s no gain, no loss. But under current tax law, you owe
taxes on the phantom ‘gain.’ Worse, if your stock went up by less than the
cumulative inflation, you’ll still get taxed despite your loss. This is unfair
and dysfunctional.”
While the suggestion is
appealing to many investors, it’s not without controversy. For example, the
White House suggested the Treasury Department change the tax code without
Congressional approval by modifying enforcement regulations. However, the
legislative branch – Congress – is constitutionally responsible for tax law.
In addition, adjusting capital
gains for inflation without doing the same for interest expense and
depreciation may allow some taxpayers to be able to generate significant losses
on paper. Current tax law includes provisions that limit this kind of tax
strategy, but indexing capital gains would reopen the door, reported the Tax Policy Center.
Another consideration is the
impact of the change on the deficit and the national debt. The Congressional Budget Office estimates
suggest 2017 tax reform will increase “…the total projected deficit over the
2018-2028 period by about $1.9 trillion.” Adjusting capital gains for inflation
could increase the shortfall by about $100 billion over a decade, reported
Naomi Jagoda for The Hill.
Data as of 8/3/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
0.8%
|
6.2%
|
14.9%
|
10.6%
|
10.7%
|
8.6%
|
|
Dow Jones Global ex-U.S.
|
-1.4
|
-4.1
|
2.0
|
3.7
|
3.0
|
1.2
|
|
10-year Treasury Note (Yield
Only)
|
3.0
|
NA
|
2.2
|
2.2
|
2.6
|
4.0
|
|
Gold (per ounce)
|
-0.6
|
-6.2
|
-4.1
|
3.7
|
-1.4
|
3.0
|
|
Bloomberg Commodity Index
|
0.1
|
-3.7
|
1.9
|
-2.1
|
-7.5
|
-8.1
|
|
DJ Equity All REIT Total
Return Index
|
3.2
|
3.2
|
6.2
|
8.0
|
9.4
|
8.3
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
the millennial way. From social media to
housing options to banking, every generation has had its own preferences.
Today, millennials (individuals between the ages of 18 and 34) are having a
profound influence on lifestyle and culture. Here are three trends to watch:
1.
Millennials
are moving to smaller cities. “Mid- or second-tier cities, loosely defined
as those under a million people that aren’t regional powerhouses like Austin or
Seattle, are increasingly seen as not just places to find a lower cost of
living, easier commute, and closer connections with family, but also a more
approachable, neighborhood-oriented version of the urban lifestyle that sent
many to the larger cities in the first place,” reported Patrick Sisson for Curbed.com.
2.
Millennials
like point-of-sale loans. Point-of-sale loans are catching on. The Economist reported, “Consumers who
might previously have financed big-ticket purchases such as furniture,
electronics, or home-improvement projects with a credit card are now opting to
borrow at the checkout, often with an initial 0 percent interest rate. These
short-term credit products were once the domain of big banks…[and]
store-branded credit cards. Now tech startups are entering the market with
innovative techniques for underwriting and approving potential borrowers, often
in seconds.”
3.
Millennials
tend to prefer healthier lifestyles. “For millennials, wellness is a daily,
active pursuit. They’re exercising more, eating smarter, and smoking less than
previous generations. They’re using apps to track training data and online
information to find the healthiest foods. And, this is one space where they’re
willing to spend money on compelling brands,” reported Goldman Sachs.
Weekly Focus – Think About
It
“The changes in our life must
come from the impossibility to live otherwise than according to the demands of
our conscience, not from our mental resolution to try a new form of life.”
--Leo Tolstoy, Russian writer
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
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* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock
market in general. You cannot invest directly in this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees,
expenses, or sales charges.
Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.
Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.
The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
* To unsubscribe from the
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Sources:
https://www.wsj.com/articles/index-capital-gains-but-not-without-congresss-consent-1533163465
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-06-18_WSJ-Index_Capital_Gains_but_Not_Without_Congress_Consent-Footnote_3.pdf)
https://www.economist.com/finance-and-economics/2018/08/04/tech-startups-are-reviving-point-of-sale-lending (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-06-18_TheEconomist-Tech-Startups_are_Reviving_Point-of-Sale_Lending-Footnote_10.pdf)
