Don’t Let Adversity Mask Opportunity and Our Fourth Client Story

In advance of our fourth client story, I wanted to comment about the current investment climate. This has undoubtedly been a very difficult environment for everyone. Having a more conservative allocation than the stock market and having a well-diversified portfolio has helped a lot. However, neither strategy has prevented portfolio declines. Most asset classes have experienced negative returns for the year.

Where there is adversity, there is always opportunity. There are good reasons to be optimistic, for both conservative and aggressive investors alike:

1. Remember that investment returns are most important when you need the money. Negative fluctuations in value before then are just that. They do not represent the outcome. We work very hard to design portfolios that can perform well over your time horizon. Any moneys you need in the very near future are never invested aggressively.

2. The process of rising interest rates is a very painful one for all investors. However, interest rates are now at their highest levels since 2007. If you are a conservative investor, you can now invest in US treasuries, in high quality corporate bonds, and in CDs, and you can potentially make good returns in all of these. Yes, inflation is a problem right now, but it may not be a problem 1-2 years from now. There is an opportunity to lock in good returns in conservative assets. This opportunity hasn’t existed for a very long time.

3. For more aggressive investors, many parts of the global stock market are inexpensive from an historical standpoint. This doesn’t mean they can’t go much lower in the near term. However, if your investment horizon is long, what happens today or tomorrow will not matter in terms of the long-term outcome. I believe it is impossible to successfully time the market. Long-term, buying inexpensive assets and holding on to them has had a very good track record of being rewarding regardless of what is going on in the world at the time.

4. Avoid “holy grail” investing. In even the worst environments, there are always investments that have seemingly weathered the storm, performing very well. With this, often comes the belief that this asset’s past returns are also indicative of its future results. What usually happens is that the “last asset standing” is often the next to be knocked down. All aggressive assets have their up and down cycles. The only difference is in the timing of them.

Our fourth client story is about a retired couple showing a low level of taxable income.

One spouse had a significant amount of company stock in her 401K and wanted to transfer her 401K to an IRA. The stock was purchased a long time ago at a very low cost-basis. Since then, the stock has appreciated considerably.

Rather than liquidating the stock inside of her 401K, we recommended transferring her stock to a taxable non-IRA account, only rolling over the small portion of her account that was not in company stock to her IRA.

This is called a Net Unrealized Appreciation (NUA) transaction and the stock is considered NUA stock.
This strategy allowed for the following positive outcomes:

  • At the time of the rollover, the couple was only taxed on the cost basis of the stock, which was very small. Given they had very little other taxable income, the tax impact of this transfer was almost zero.
  • The gains on the stock would only be taxable when sold and only at the couple’s long-term capital gains rate, not their income tax rate.
  • We worked with the couple to realize these long-term gains over 3 years. With little other taxable income, much of these gains went untaxed.
  • The couple effectively shifted assets from a pre-tax 401K to a post-tax account with a minimal tax impact, potentially saving significant taxes down the road. Their heirs also potentially benefit. The future tax obligation of inheriting an IRA or a 401K can be significant. The future tax impact of inheriting a non-IRA should be much less so.

Our motto is “we can help you with that.” We will collaborate with you on any financial decision you make, engaging other subject matter experts when necessary. We will not stop until we get things right.

We encourage you to reach out to us for assistance making important financial decisions and we always appreciate you recommending us to others.


Any examples given are for illustrative purposes only and not meant to provide specific advice or recommendations for any individual. We strongly recommend you consult a qualified professional regarding your specific situation.