Posted on 02/19/2023 9:28:46 AM PST by Kaiser8408a
As the economy weakens and The Federal Reserve tightens (to fight inflation), we are seeing the lowest level of S&P 500 equity risk premiums since before the financial crisis.
Call this map of the East Palestine, Ohio derailment and explosion of toxic chemicals (by Norfolk Southern Railroad) “The Buttigieg Retreat.” And how toxic chemicals are flowing through the US river system.
Way to go, Mayor Pete amd Dementia Joe!
(Excerpt) Read more at confoundedinterest.net ...
So, when this articles says US S&P 500 Equity Risk Premium Plunges To “Death Zone”, it means that investing in the S&P 500 is likely to offer no better return than a risk-free investment (like CDs). Brokered CD rates are now over 5%.
Right, but “death zone” sounds so much more dire!
Except I am sitting on 6 figure unrealized capital gain. If I sell, 30%+ eaten up by short term gain tax rate.
It is a conundrum.
I would recommend you cash in some of your profits—of course I am more risk averse than many folks.
I agree with the premise of the article—stocks are overvalued by almost any metric I can think of....
Long term in June. All index funds. Too old to risk individual securities.
Already cashed out 50% from tax deferred account.
Will cash out other 50% in February.
But taxable account is the conundrum.
1. Hedge
2. Sell part
3. Sell all
4. Ignore and hope you live long enough to see a recovery
4.5 Ignore and hope the market goes up instead of down
5. Potentially lose more than your taxes would’ve been if you sold
6. Think about it more while cruising.
Choose wisely.
PS - Hope isn’t an investment strategy… I threw them in for completeness.🤗
How to hedge index funds? I have no experience.
Most of us would love to have your problem. I have money in the S&P 500 that I don't immediately need; it's there for the long term (at least 10 years). There is no guarantee that any stock will go up over time. However, we know history and the S&P "over time" has maintained an upward trajectory. If you don't need the money, do you see your stock investment(s) rising over the next 5,10,20 years? If yes, that should answer your conundrum.
In that case I would wait until your gains became long term—I don’t expect an immediate correction.
Short index funds…
They move in the opposite direction
If you balance it 50/50 the result would be no movement.
Obviously, you could also adjust either way.
You will have a learning curve like in everything new
I am counting on stocks getting more overvalued.
Bubbles have a tendency to grow bigger than is justified.
I am planning to strap the parachute before the favorable seasonality ends in mid-April.
Thanks for that advice. Much appreciated.
I will execute that idea.
Are they mutual funds or ETFs? Do you have a margin account?
Be careful, since you are new to it, and your horse is in the middle of the stream…
I had two capital gains of that type in the last 3 years but fortunately I’d owned them long enough that they qualified as long term. Tax consequences are a constant concern, that’s why I’m sitting on a boat-load of preferred stocks and US T-Bills at this point. My big cap gains were in real estate.
The fact I had owned one for over 20 years and taken so many write-offs against meant the entire proceeds were taxable as a long-term cap gain. That was bad enough.
I feel lucky that only a small percentage of my assets are in retirement accounts. I just take the minimums each year. What is left when I die can go to my heirs.
I worked for myself starting very early and most of my good money was made in long-term capital gains except for land development projects, which I paid high taxes on plus that lovely thing called “phantom income”. It all worked out though. Coasting now, waiting and watching for some nice rural land with water rights.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.