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Dear <<First Name>>,
As the we have experienced the recent price swings in the market the past couple of quarters many of us will be reminded of the old adage "Sell In May and go away." This phrase refers to an investment practice that simply advocates selling stocks in May and buying them in November. Without getting into the various data points and reasons for or against this strategy I want to draw your attention to the underlying concept of selling stock in the short term versus long term. Remember whenever you sell it is an investment decision, which can have tax implications unless you are selling within an IRA or similar qualified account.
Each month I share thoughts on various topics in the world of personal finance, investing, economics, and business through my writings. May you find my musings informative, thought provoking, and enjoyable.
Thank you for continuing to read and I look forward to your comments.
Thoughtfully,
Walid L. Petiri AAMS, RFC
Financial Management Strategies, LLC
http://www.fmsadvisors.com
Long-Term Worth the Wait and Risk?
Gains from the sale of capital assets such as stocks and other securities held over a year are referred to as long-term capital gains, while those held for shorter periods are called short-term. Long-term gains enjoy special tax treatment while short-term gains are taxed as ordinary income. Taxpayers are currently enjoying lower capital gains rates through 2012. The rates below reflect the reduced rates for capital gains sales through 2012.
It is frequently asked if it is worth the risk holding a security long-term versus cashing in on short-term gain. Of course, no one has a crystal ball and can predict the future performance of a particular stock or the market in general, but we can provide some guidelines that will help you with your risk-reward analysis. The following chart illustrates the difference between short and long-term capital rates and the net savings based on a taxpayer's tax bracket. Keep in mind that your tax bracket is also a function of your total income including the capital gains. Therefore, the larger the gain, the greater the chance you will move into a higher tax bracket.
| Tax Bracket |
Short-Term
Rate |
Long-Term
Rate |
Net Long-Term Savings |
| 10% |
10% |
0% |
5% |
| 15% |
15% |
0% |
15% |
| 25% |
25% |
15% |
10% |
| 28% |
28% |
15% |
13% |
| 33% |
33% |
15% |
18% |
| 35% |
35% |
15% |
20% |
As example, suppose you are in the 28% tax bracket and have a potential $10,000 capital gain. The tax for short-term gain is 28% or $2,800. On the other hand, if you held it over a year, the gain would be taxed at 15% or $1,500. Your savings would be $1,300.
Now it is up to you to decide whether the savings of $1,300 is worth the risk of holding the stock until it qualifies as long-term.
Source: ClientWhys
Walid Petiri is the owner of Financial Management Strategies, LLC (FMS) a Registered Investment Advisor established in 2000. He has over two decades of financial experience that covers virtually all areas of finance from tax, insurance, stockbroker, personal financial planning and personal banking to corporate credit, business planning and consumer lending. Additionally, in 2011 he co-founded CASI Institutional Consulting, Inc. (CIC) an institutional investment advisor that provides investment policy statement (IPS) preparation, investment manager search and selection, and state of the art asset allocation designs including the creation and implementation of emerging and diversely owned investment manager initiatives. He advises on assets invested by public pensions, state funds, private endowment and foundations, as well as select individuals.
Mr. Petiri has frequently been heard on WEAA (88.9 FM) as a financial commentator, appeared on WMAR-TV 2 regarding the 2008 & 2009 economic downturn, and MTA Commuter Connections regarding residential land development. He has been interviewed and quoted by the Investment News magazine, written for the Journal of Personal Finance, is a frequent contributor to the IARFC publication, The Register, Popular Finance (of China), Minority Enterprise Advocate magazine, and publishes a monthly financial advice column called the Foresight. Mr. Petiri was also quoted in Bankrate.com and currently writes for the Baltimore Examiner. Most recently, Walid’s articles can also be found on Aging News Alert, Morningstar.com, USAToday.com, TheStreet.com, Wall Street CheatSheet, Examiner, and AdviceIQ.com.
In June 2012, Walid was featured in SmartCEO Magazine - Baltimore for the 2012 Top Money Managers Wealth Management. Walid serves on the Finance Committee of Associated Black Charities and is member of Bethel African Methodist Episcopal Church. He also serves on the Board of Directors for the Reginald F. Lewis Museum and is devoted parent to his son and daughter.
 
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Walid L. Petiri AAMS, RFC
Chief Strategist
Financial Management Strategies, LLC
1330 Smith Avenue
Suite 7
Baltimore, MD 21209
(p) 410-779-1276
(f) 410-779-1302
please visit our website www.fmsadvisors.com
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