After several days of dramatic drops, we finally got the stock market correction just about everyone was expecting at some point because we hadn’t had one in so long. Both the Dow Industrials and the S&P 500 crossed the 10% decline threshold from their January 26th highs. The Nasdaq Composite is almost there. The last time the market had an official correction from a previous high was in February, 2016.
How do you build and preserve your wealth no matter what the market or economic conditions? Sometimes a simple answer can be part of the solution. Reduce your tax bite. The less Uncle Sam and local governments get of your earnings and investment gains the more you get to keep to build your next egg.
Taxes take a huge bite out of investment returns, an estimated 1-3% annually, higher than most management fees and more than the returns, or “alpha", that active managers hope to deliver over market performance year after year.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
The same concept applies to expenses. The more you pay in management and transaction fees the less you have to invest and live. The average investment advisor charges one percent on the assets that you bring to him or her to oversee and manage. Transaction fees, particularly on frequently traded accounts, add another burden.
One of this week’s guests calls his strategy to overcome these costs The 50% Rule: “If you do not get to keep at least 50% of your profits after accounting for leakages to pay taxes and investment management fees, you should reassess your approach. “
He is Stuart Lucas, Chairman and Chief Investment Officer of Wealth Strategist Partners which serves as a chief investment officer for a small number of high net worth individuals and their family offices. He is also an Adjunct Professor of Finance at the Booth School of Business at the University of Chicago where he teaches courses on private wealth management for the same demographic. Lucas is the author of the newly revised book Wealth: Grow it and Protect It. In it he relates his experience as one of the heirs to a large fortune which could have been dissipated within a few generations had he not taken a proactive and comprehensive management approach.
He is joined by Andy Augenblick, Co-founder and President of Emigrant Bank Fine Art Finance, a leading provider of art financing. He is also the Co-founder and President of its subsidiary Fine Art Asset Management, which provides art advisory services, appraisals and art-related financial services to individuals, institutions and advisors. Augenblick is a long time art collector who Art & Antiques magazine named one of the top 100 collectors in the United States.
Both guests will discuss how to avoid the taxes and fees that hit individual investors so hard in their financial portfolios and art investments.
Thank you for joining us this week. Have a Happy Valentine’s Day and make the week ahead a profitable and a productive one.