The Capitalist Investor - Episode 114

We’re always thinking about where the market, its industries and the world are currently standing. But we can’t let that distract us from thinking of where it can stand one month, six months, or even a year from now. This week, Mark, Derek, and Luke sit down and summarize where everything lies today and how it can change: tax rates, laws, mortgage rates, the housing market and just overall the social-political climate which we’re living in. Whether you are concerned about when it’s time to take a profit with your large gains, buying or selling a home now or in the future, or even just curious about what the world may look like in a couple months –– this episode covers all the questions that keep everyday investors up at night. In episode #114 of “The Capitalist Investor,” the guys convene and dissect every shift we’ve seen this year to ensure we’re all prepared for what’s to come in the future.

Outline of this Episode:

  • [3:00] When to know it’s time to turn your gains into profits
  • [9:00] Behavioral Finance 101
  • [10:55] Who the housing market really hurts
  • [22:05] Mask mandates, living with Covid-19’s lasting impacts

When is it time to turn your large gains into a profit? Remember these three rules

If you’re skeptical about whether it’s time to take your gains and turn them into a profit, answer this: where are these gains located? Are they in an IRA or 401k where there are no tax consequences to unwinding your appreciated position?

Or are they in non-qualified accounts that are fully taxable and come along with a burdensome capital gains tax if you sell? Are those capital gains taxes short-term with a high payment or a more beneficial long-term rate? If you don’t know, then start there –– understanding taxes is one of the most crucially important parts to investing.

If you’re saving into your work plan, IRA, or 401k –– there’s no worrying about taxes until you start taking out that money in retirement.

But if we’re talking non-qualified taxable accounts and turning gains into profits –– it’s all about understanding the taxes and calculating how much your return is actually going to them.

If you’re scared of being blindsided and that’s what is making you weary of selling, calculate your returns and the amount of taxes you will be likely owing ahead of time. Stay conscious and aware –– you always have to be thinking ahead and on top of how tax rates and tax laws may change.

We’re currently in a low tax rate environment –– long-term or short-term plan, you’re still going to have to pay some sort of taxes on any gain you make. But what if you sit too long and new, less desirable tax policies are implemented? You may just be waiting for a higher tax rate that comes with an ill loss.

Never let the obligated inconvenience of paying taxes be the only obstacle in your way of selling and occurring opportunity cost. Being too stubborn or guarded towards capital gains tax can get you in trouble, especially if the stock you’re pulling for isn’t performing. Instead, you could place that money on a new opportunity where you may have better chances at higher gains.

Paying taxes on any gain you like is really just a consequence of winning. Wouldn’t you rather be in a winning position, paying some taxes? On the other side of that door is someone who isn’t paying taxes, yes –– but a “someone” who is in a losing position, losing money.

Behavioral Finance 101: be conscious, don’t get overly attached to your position

Everybody wants to be a winner and they want to have winning investments. We get it, nobody wants to pay the government their money in taxes, and no one wants to let go of something that’s working for them.

Those are all natural feelings, but you have to fight against them sometimes. It’s necessary to be conscious of when you’re getting overly attached to your position. Most stocks and companies are bound to perform high and then experience a dip –– they’re not always going to be on the up and up.

You have to learn how to let go of your high positions and focus your gains elsewhere. If you become too knitted with a position, you’re eventually going to miss out on newer, more favorable opportunities.

If the housing market continues down the path its on –– majority of Americans get hurt

Since early January, the average 30-year fixed mortgage rate has climbed from 3.2 percent to 4 percent –– just over the course of a near 40-day period, give or take. At its current rate, it could climb to at least 5 percent in just 12 months from now.

The housing market over the last few years has experienced a perfect convergence of events: low inventory, surplus of buyers, low interest rates, and an increase of buyers’ funding from government stimulus checks. It was the perfect storm for the market’s momentum–– now average home prices today are higher than they have ever peaked in 2019. Mortgage payments are increasing alongside the trend –– the middle-class income is being withered away by rising home costs.

Where do we go from here? Are housing prices going to decrease as interest rates rise –– that’s the typical thought process, right? But today, not everything works the same as it did, and we can’t depend on age-old expectations.

What we are seeing and going to see is a major impact on most Americans. First time home buyers, lower-income and middle-income Americans are going to get hurt the most, although home buying right now is difficult for every income bracket.

High home prices will deter the amount of home buyers out there. The majority of those first-time home buyers are historically those in middle-income America –– the people who are getting hit the hardest by the housing market are the ones who have always been able to prop up the economy in its downturn. But now, they’re being priced out and it’s going to further derail a countless number of industries.

The housing market may only account for 5 percent of the overall GDP but what many people neglect is how many other industries are connected to the housing market. When people can’t buy homes, contractors can’t build, people won’t be needing new furniture or appliances, and appliance companies won’t need to order more of those computer chips they use to power their products. It’s a chain reaction, a spider web that keeps on being weaved larger and wider.

We’ve learned to live with Covid-19 by now, but what about its lasting impacts?

Popular mask-mandated states like New York and California have begun to lift public health measures and people are going back to mask-less ways of life. Carnival –– one of the country’s largest cruise line companies announced that it plans to open its ships without restrictions by April.

Are we moving into the direction of normalcy again? When the masks are off, does that mean Covid-19 is behind us? The obvious truth is no, Covid-19 is not over and gone. It’s just over from a policy standpoint.

The virus has turned into something we have to live with in our daily lives –– it has become just as common as the flu, and policy eases prove that however people go about protecting themselves from Covid-19 is up to them.

The policies may be rolling back, but the lasting impact that Covid-19 placed on us is ingrained in our everyday lives now.

Quarantining, isolation, lockdowns, and online schooling has made so many people believe that an online universe is a somewhat feasible adaptation of life. The Covid-19 pandemic strengthened the justification of the Metaverse and programmed people to think that life is meant to be lived remotely and experienced no longer beyond the four walls of your room.

While most adults can remember the time when we experienced life normally, what is being ingrained in the kids? How many years of socialization and experiences have been lost for them?

These last few years have been challenging, unpredictable and filled with obstacles we never thought we would have to face. If we’re finally climbing out of those times, we have to think ahead and prepare for the impacts it will have going forward –– financially, socially, on our health, and most importantly on our kids.

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Keep Listening to The Capitalist Investor:
Episode 15:
Spending Strategies in a Bear Market, Ep #15
Episode 31:
Handicapping the 2020 Election, Ep #31
Episode 47:
11 Investments in Your Home That Pay Off, Ep #47
Episode 63:
Jeff Bezos and Amazon: Past, Present, and Future Ep #63
Episode 79:
7 Ways Biden Plans to Tax American Families (Part II), Ep #79
Episode 95:
5 Beaten Down Stocks to Buy on the Dip, Ep #95
Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
Retail Earnings Tank & What The Heck is Greenflation? Ep. #127