Ask Linda: Gifting Stock to my Child

Ask Linda: Gifting Stock to my Child

I am a widow and want to gift some of the individual, concentrated stock in my brokerage account to my only child, my adult son. I am tired of managing the stock and feeling like I need to stay on top of the earnings reports, news, etc. I would rather gift it to him and have the rest of my portfolio in low-cost, diversified positions. The stock has a very low basis and will incur a large amount of long-term capital gains upon selling. What are your thoughts?

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Diversification with International Exposure

Feeling uneasy with the global economy right now? Remember: Portfolios that include international exposure have historically performed better (and with less risk) than those that don't. The goal of diversification is to have broad exposure to different areas that are not perfectly correlated (such as the US and international markets). When one part of the portfolio goes down, it is offset by another part that behaves differently.

Trying to time movement in the market is not a viable strategy. We know the markets will react to political & economic events - we just don't know when or by how much. Successful market timing requires getting two things correct - when to get out of the market and when to get back in. When investors react emotionally, they tend to buy high and sell low.

During the planning process, I help you determine a balance you are comfortable with, and can stick with, always at a time when things are not emotional.

During this time of market volatility, remember your long-term goals.

Stock markets are unpredictable. Jason Zweig is a writer with the Wall Street Journal. His article this month is worth reading. He shares the story of a financial planner who has three new clients with large amounts of cash. They sold their stock holdings during 2008 / 2009 and never got back into the market. “Only this year, with stocks again near record highs, did they finally get tempted to buy again.” In other words, they are chasing performance and want to buy when stocks are high and sell when stocks are low. Chasing performance means you are acting emotionally and it will cost you. "Buy high, sell low, repeat until broke." That is the message in this timeless sketch by Carl Richards. Mr. Zweig’s previously cited article mentions several studies that have analyzed the toll chasing performance takes on your portfolio. “Over the long-run, it reduces returns by an average of approximately 1.5 percentage points annually.”

Ron Lieber is a writer with the New York Times.  His article this month also does a great job of putting volatility into perspective.  The time to review your portfolio and to be honest about what kind of loss you can handle is now, not when the next bear market hits.  Stay focused on what you are trying to accomplish in the long-term and trust the decisions you made during calmer times. 

If you have any concerns, let’s schedule a call or meeting.  Also, let me know if you would like a PDF of any of the articles mentioned.  You may not be able to view them depending on whether or not you have a subscription.  linda@planningwithinreach.com

This website and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.

Highlights from Bernstein Interview

William Bernstein was interviewed in the September issue of Money.  Here are some highlights:

1.  How young people should invest – no surprise here:  “For the average person, you’ll want a very high stock allocation.”  The reason is that you have three to four decades of earnings potential ahead of you.  “So even if your investment capital when you’re 26 years old falls by one-half, your total worth has fallen by only a couple of percent because you still have that 34 years of human capital left.”

2.  A different take on inflation protection:  Bernstein points out that buying dividend-yielding stocks is not the only way to protect against future inflation.  Another asset class is short, high-quality bonds with a maturity of less than three years.  “If we ever do get an inflationary shock, investors will demand a high real short-term rate of return.  It’s what happened during the late ‘70s and early ‘80s.”

3.  On investing near and after retirement:  “…you should save 20-25 times your residual living expenses – that is, the yearly shortfall you have to make up after Social Security and any pension.  This portfolio should be in safe assets….”  This is yet another reason why you should have a good handle on your expenses now.  It is hard to set goals and plan for the future otherwise.

To view the entire interview, including how to invest during other stages of life and how to find a good financial advisor, go here