It’s hard to believe that it’s been 8 years since the 2009 market lows of the Great Recession. Since that time, the stock market has been on a steady climb; continuously breaking to new highs. This has resulted in one of the strongest bull markets of our lifetime.
One of the long-term pillars of our investment philosophy is “money moves markets.” In simple terms, this means if interest rates are low and the money supply is expanding, then asset prices should rise. That has definitely proven to be true with this bull market. And that belief is what drove us to stay heavily invested in the stock market over the past 8 years.
However, with the recent stock market rise, numerous stocks have seen a healthy gain and may now make up a larger portion of your portfolio. Many stocks that we follow are also at the high-end of our valuation range. These two factors may lead us to be more aggressive in selling stocks when rebalancing your portfolio in the coming months.
As you know, we are always conscious of how a trade will impact taxes. However, there are times in a market cycle when taking gains to maintain a diversified portfolio is the prudent course of action.
We want to bring to your attention that as we pare back on certain stocks in your portfolio, this will result in higher capital gains. We realize that nobody likes to pay taxes, ourselves included, but for taxable accounts this move will unfortunately lead to a larger tax bill come April. As you know, we are always conscious of how a trade will impact taxes. However, there are times in a market cycle when taking gains to maintain a diversified portfolio is the prudent course of action. And as stocks become more expensive, the future expected return diminishes leading us to look for more promising investments.
The last 8 years has been very positive for equity investors resulting in sizeable gains in many portfolios. We will continue to evaluate the current market and rebalance when necessary to make sure we are following a prudent long-term investment strategy.
Please feel free to give us a call with any questions.
