“P
ack the car mama – we’re gonna live on Easy Street.”
That’s the refrain I hear as the stock market continues to defy gravity and set weekly records. Everyday folks are running to the mailbox to see how much richer they are this month than last.
I hate to burst your bubble – but what you see on those statements is…pulp fiction – paper gains – numbers on a piece of paper. They’re meaningless until and unless they’re converted into cash.
When you decide to convert into cash by selling and locking in some of those profits – get ready for the hands that grab their share before you get what’s leftover.
• Fees and commissions will take a bite
• Taxes – Federal, State, Capital Gains will decimate those values
• Employers (if matching funds in a qualified plan are not fully vested from day one) can claw back some for themselves
• The market itself – if it moves against your paper gains
The point is – don’t get starry-eyed about paper profits. Don’t start looking at new cars, new homes, or new shiny things for the Mrs. Be realistic and recognize paper gains for what they are.
Here’s another reality check – two statistics that should shock you.
1. The S&P 500 Stock Index has grown by 200% since its low water mark on March 9, 2009 – just 4-1/2 years ago,
2. Since the mini-correction that ended on August 7, 2014 (this being written on August 28), American equities have risen in value by more than $1,000,000,000,000 – that’s one trillion dollars – in 3 weeks!
What rational set of facts supports those kinds of gains? Is the economy booming? Are corporate profits soaring? Is unemployment down? Is debt under control? Are currencies stable? Is there calm in the world?
We have to face the reality that each day – we move one day closer to a point where the current bubble will burst. It could be today – it could be a year from now or more. Conjecture on the timing is pointless – recognition of the end of this bull-run is not.
It’s time to get serious about a plan to lock in gains without moving to the sideline in case this market has more room on the upside. It’s time to get serious about opting-out of the taxation of your gains going forward. It’s time to get serious about keeping other hands out of your cookie jar.
If you don’t know how – if you haven’t been offered options with those outcomes – you know where we are!
