Tax Alert: Your Weekly Update - Japan Pledges Tax Cuts

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Weekly Market Recap

This was an uneventful week for economic announcements in the US. However, overseas news was largely positive. European trade data was strong, with German exports and imports growing more than expected to reach record highs. In Japan, stocks reacted positively to the Prime Minister's pledge that he expects to lower Japan's corporate tax rates next year. In fact, Japanese stocks had their biggest one day gain since 2008 this past Wednesday. In China, the Ministry of Finance is expected to take further steps to stimulate the economy and this lifted Chinese stocks. This a good reminder on the importance of holding a diversified portfolio. Having exposure to foreign developed and emerging markets in your portfolio positions you to capture growth wherever it occurs globally.

One thing that is important to remember in light of weak months for asset returns, such as we've seen this August, is that the long term returns for stocks, which are historically robust, do include many bad months. Despite this, looking back over history, stocks have still offered attractive returns.

For example, on average, looking back to 1950, the S&P 500 experienced monthly declines for about 5 months out of 12 in a typical year. That may seem like a lot of down months. As a result, it might feel like your opportunity to achieve positive returns as an investor is pretty meager. Yet, actually small positive differences really have added up over time for investors. This has caused the S&P 500 to deliver an average return of 7.7% since 1950.

Remember that average annual 7.7% return going back to 1950 includes all of the months when stocks have declined (317 months in fact). So a negative month for stocks is regular event. However, despite all these negative months in the past, long-term returns to stocks have been positive, and better than many other mainstream asset classes in our view. This is one reason why we view diversified stock exposure as important for asset growth, but also employ other assets and rebalancing to keep portfolios on track.

Disclaimer:
The views expressed herein are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. Past performance is not indicative of future results. The tax loss harvesting strategy discussed should not be interpreted as tax advice and it does not represent in any manner that the tax consequences detailed will be obtained or that its tax loss harvesting strategy will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing.