"This is probably the most difficult end-of-year planning I have ever seen in my career"
~ veteran investment adviser Bob Fitzwilson
As the Fiscal Cliff looms ahead, as well as the implications of new legislation at both the Federal (e.g., "Obamacare") and state (e.g., California's Prop 30) levels, financial advisers are furiously working to calculate the impact these developments will have on their clients' net worth in 2013 and beyond.
Add to that the ugly macroeconomic environment of spiraling sovereign debts and deficits, currency devaluation, and underfunded entitlement programs. At this point, the prudent assumptions to make are that taxes will go higher over time, the money printing machines will run at maximum speed, and – when the system really begins to collapse under its own unsustainability – the rules will be changed. Perhaps that means capital controls; perhaps it means new restrictions on large asset pools like pension and retirement funds; perhaps it means wealth taxation. At this point, no one knows for sure.
No wonder this is such a difficult moment for end-of-year planning.
So, what to do?
Do you accelerate or defer income, and do you accelerate or defer deductions?
Nobody has any idea about what the tax rates are going to look like exactly for next year, so you kind of need to make a decision under extreme uncertainty. Traditionally what you would do is you would defer income and accelerate deductions. But if tax rates are going to go up a lot, then it may be better to accelerate the income and defer the deductions to a time when the rates are probably going to be a lot higher.
One area for that is in capital gains. If you believe what they are saying and you just look at the arithmetic of the deficit, these things are going to have to rise. So a lot of people are just booking the capital gains, even for short-term capital gains, because the tax rates have to go up dramatically.
So these are issues that people need to look at – and we only have until the end of the month to make these decisions.
In terms of positioning a portfolio for the trickier future ahead of us, Bob notes that tax planning will become increasingly essential. The same goes for estate planning, where understanding how to appropriately use vehicles like trusts, gifting, and family limited partnerships when relevant can make a big difference in intelligently and legally protecting one's wealth. Beyond that, his portfolio strategy emphasizes real assets including energy, water and food-related investments, and — especially — precious metals.
I actually think that this is the plan, and I think there is a group of people who have run the numbers, too. They are not stupid, and they know there just aren't the multi-hundreds of trillions of dollars to pay for all of these commitments. I do believe that a new currency is in our future, and so all the spending is a way to accelerate the end of the current monetary scene and do a reboot. They have to push the monetary system over the cliff so that they can do a restart; probably with a commodity-based currency, perhaps with just traditional gold.
The vast majority of people around the planet have little money, so I expect sometime in the future there will be a press conference where they will say something like, We are embarrassed about the decline in paper money and we are going back to sound currency. And 99 percent of the people on the planet are going to say that sounds really good.
So the people who are exposed are the ones who have accumulated wealth. And so there is a short time left; as we discussed before, you have to take care of your health and your family, food, your well being, and all that. But if you have accumulated wealth beyond that, you have to start protecting it in ways against that press conference, which I believe is in our future.
If after listening to this podcast, you find yourself interested in connecting with Bob and his team to learn more about their advisory services, please use the form here to do so.
Transparency note: As a result of our public endorsement of Bob's firm, Peak Prosperity has a commercial relationship with them. The details of this relationship are clearly presented in writing during the referral process — but the punchline is, our relationship does NOT result in any increased fees to those who become clients.
cheers,
Adam
It should go without saying: this discussion should not be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which Chris and Bob are obviously unaware of) and should be obtained directly from a financial advisor you trust. Before acting on any of the statements made in this podcast, we advise you do just that.
Click the play button below to listen to Chris' interview with Bob Fitzwilson (38m:41s):
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