Haitham E. Ashoo and Chris Snyder,
Pillar Wealth Management
Investment experts who predicted a turbulent stock market this year have seen their prophecies come true.
One of the more recent examples came when a spike in long-term interest rates unnerved investors, sending major U.S. stock indexes on a downward clip.
The volatility is expected to continue, and the dramatic ups and downs could leave some investors queasy, especially if they bit into more risk than they can stomach.
“One of the unfortunate truths about investing is there are many things that can affect your portfolio that you have absolutely no control over,” says wealth management advisor Haitham “Hutch” Ashoo, co-founder with Chris Snyder of Pillar Wealth Management.
“Just as an example, can we control geopolitical events that could cause a negative effect on the markets? The answer is no.”
That’s why it’s important to control what you can, and settle on a risk-exposure level that allows you to rest easy when outside forces kick in, Ashoo says.
He and Snyder suggest a few things to consider or watch out for as you protect your portfolio:
• Taxes. Both income and estate taxes can inflict damage to a portfolio if the investor isn’t careful. Estate taxes, for example, chip away a portion of what you planned to leave to heirs. Part of the estate’s worth is exempt, but the tax kicks in when the value exceeds $5.43 million for an individual and $10.86 million for a married couple. “Strategies are available to help reduce or eliminate the estate tax,” Snyder says. Investors also must be careful about how their decisions affect their income-tax liability. For example, short-term capital gains — those achieved in 12 months or less — are taxed as ordinary income, which is a higher rate than the rate for long-term capital gains. An investor might still make the same decision, Snyder says, but it’s important to realize the implications.
• Active managers. The motivation for active money managers is to make more money, but in the process they aren’t always focused on the tax repercussions of short-term gains. Although taxes are on their radar, they are not the primary driver of their trading patterns, Snyder says. An active manager might successfully capture a great short-term gain for a client, but “the problem is the client gets hit with the short-term capital gains tax,” he says.
• Human nature. Be on the lookout for you. Ashoo says one of the most destructive forces a financial portfolio faces is human nature. “We as humans are not very well wired for investing,” Ashoo says. “People get caught up in hype. We tend to jump on the bandwagon when things are going well, but by then a stock may have hit its peak. We tend to jump off the bandwagon when it’s too late.” Even investment professionals can succumb to letting emotions overrule logic. Any means of eliminating human emotion from investment decisions is recommended, Snyder says.
• Risk level. “Investors need to figure out what their goals are,” Snyder says. “Then they need to decide what level of risk they are willing to accept to achieve those goals and stick with that, come hell or high water.” Otherwise, he says, you can fall victim to media hype or influence from friends or relatives who may be driven as much by emotion as you. “The trick is to have a level of risk you are comfortable with so you can get through it emotionally unscathed,” Ashoo says.
—————
Haitham “Hutch” E. Ashoo and Chris Snyder are co-founders of Pillar Wealth Management, LLC, a 100 percent fee-based private wealth management firm in Walnut Creek, CA. Ashoo and Snyder have a combined 50-plus years of wealth management experience. Their firm is focused on delivering customized wealth management advice to high-net worth individuals and families as well as privately held company owners.
