2016 Tax Planning Guide

Comment on “The Individual Investor’s Guide to Personal Tax Planning 2016,” by AAII staff, in the December 2016 AAII Journal.

Excellent information for 2017 tax planning and very timely. Keep up the good work!
—Krishnajivan Shah from Georgia

Praise for Indexing Approach

Comment on “Competition Has Made Indexing a Winner’s Game,” by Charles D. Ellis, in the November 2016 AAII Journal.

Thank you very much for this article. Well done. Very practical. Clearly explained. Excellent. For me, certainly one of the best articles that I have seen. Reinforces an approach I have started to use in the past couple of years.
—Steve Rogow

Correlation Is Not Always Causation

Comment on “Pollution Hurts Stock Returns,” from the Briefly Noted column in the December 2016 AAII Journal.

These types of studies are at best an “association” of two events, which may be causative or may be coincidence. If there is a causal relationship, there is also no way of knowing which of the two variables is relevant; do poor stock returns cause companies to pollute more, or vice versa?
—Christopher Viscomi from Vermont

Critiques of Israelsen Calculations

Comments on “Asset Returns During High and Low Inflationary Periods,” by Craig Israelsen, in the December 2016 AAII Journal.

Dr. Israelsen did not mention the most important point (to me, at least). If I am reading Table 2 correctly, the difference in the average real return is less using the multi-asset portfolio—meaning you have a smoother ride over time and pretty consistent performance—as compared to the 60/40 portfolio’s wider gap in average real returns. If yearly performance is closer to average (less volatility), that would tend to indicate higher terminal values at the end of a lengthy period of time. At least that’s how it seems to me.
—Craig and Nancy Bell from California

My only comment on this article has to do with the calendar-year bias for the low inflation or high inflation results. Pulling out years like 1986 and putting them into the low inflation list seems a little problematic to me, as market returns don’t always follow the same calendar as inflation. It would have made more sense to me if Israelsen had picked a continuous group of years for the asset performance.
—Dave Gilmer from Washington

Corrections

“How to Harvest Losses While Maintaining the Position” by Ben Branch (November 2016) incorrectly stated that short-term gains can only be offset by short-term losses. Net losses of either type may be deducted against either type of gain, but when figuring your capital loss carryover, short-term capital losses must be used first.

“The Individual Investor’s Guide to Personal Tax Planning 2016” (December 2016) incorrectly stated that dividends on preferred stocks do not qualify for the discounted 15%/20% tax rates. They do count as qualified dividends (unless the paying firm or mutual fund tells you otherwise). The holding period for preferred stocks is longer, however: 91 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. If the preferred dividends are due to periods totaling less than 367 days, the minimum holding period is 61 days during the 121-day period that begins 60 days before the ex-dividend date. See IRS Publication 17 for more information.