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The S&P 500 has experienced a remarkable surge in 2024, delivering one of its strongest performances since 1928. While past performance often fuels optimism, the critical question for investors looking at the year ahead is whether this bullish trend can sustain itself for the broader equities market.

Looking back on 2024

Year-ahead-forecasts in December 2023 about what 2024 would bring for investors were dismal, even after a year of more than 20% returns for the S&P 500. Perhaps what played a part in the pessimistic outlook for 2024 was the political uncertainty and heightened emotions of an election year.

However, historical data suggests that such concerns are often overblown. The S&P 500 has not only shown resilience but posted a noticeable positive performance in 83% of election years. Any post-election losses tend to be retraced by end of year. In fact, the index generously retraces its losses, typically trading higher into the year-end and into the new year, up to two months following a U.S. election.

As of Dec. 13, the S&P 500 is up 27%. If it finishes up over 20%, this will represent a spectacular two-year run for the S&P 500.

Heading into 2025

Looking ahead, forecasts suggest growth potential of the S&P 500 at 9% by the end of 2025. While the outlook remains positive, the bull market could face challenges in mid-2025. Risks such as a potential economic slowdown, tightening monetary policy or geopolitical uncertainty could lead to a market pullback. And with the S&P at an all-time high currently, investors may be nervous that a market correction is on the horizon.

What does this mean for the broader equities market?

The S&P 500 is a widely used benchmark for tracking trends in the broader equities market due to its breadth and diversity. For this same reason, it provides a simplified view of market performance at best, obscuring trends within specific sectors of the economy.

Market movements are complex and driven by a combination of factors, including but not limited to domestic and foreign policies, interest rates, geopolitical events and corporate earnings. These elements often interact in ways that make it difficult to isolate the impact of any single variable—such as an election cycle.

Recently, stocks have rallied amid expectations that tax cuts, deregulation and increased government spending will spur economic growth but the long-term impact of policies such as tariffs, foreign relations and fiscal spending remains uncertain.

The complex and unpredictable nature of financial markets means that growth may not be as consistent as projected, especially if key assumptions about policy or global conditions fail to materialize.

3 Investor Takeaways for 2025

1. Time in the market vs. timing the market

Investors should look at staying invested in the market for the long term and consider high-quality stocks. Investing in solid, well-managed companies provides a stable foundation for long-term growth, even during market dips or economic uncertainty.

2. Strategic portfolio rebalancing 

Strategic portfolio rebalancing can help investors to adjust sector exposure based on changing market conditions. This helps capture opportunities in sectors with favorable valuations or strong growth potential.

3. Diversification beyond equities

Investing in other asset classes beyond equities, such as fixed income or alternative investments, may help improve risk-adjusted returns and provide a hedge against market fluctuations. This approach can potentially reduce volatility and better align a portfolio with an investor’s risk tolerance and long-term objectives.

This is an important time to connect with a wealth management professional to ensure your investments are aligned with your financial objectives and that you’re on track to reach your wealth goals. Reach out to us today—we are here to assist you in making informed investment decisions and navigating the complexities of the current market landscape with confidence and clarity, ensuring you’re well-positioned to seize tomorrow’s opportunities.

Tax-loss harvesting, also known as tax-loss selling, is a powerful strategy that can enhance the tax efficiency of your investment gains. This strategy involves selling underperforming investments and realizing a capital loss that can then be used to offset capital gains from other investments.

As a brief refresher:

• Capital gains are triggered when you sell an investment for more than the price you purchased it for (profit).
• Capital gains are triggered when you sell an investment for less than the price you purchased it for (loss).
• Capital gains are included in your annual taxable income and taxed at your marginal tax rate. For individuals, the inclusion rate is 50% for capital gains up to $250,000 and 66.6% for the remaining amount above this threshold.

While the idea of intentionally selling a losing investment may seem counterintuitive, this can be a smart way to reduce your tax liability or in other words, the amount of taxes you owe.

Tax-Loss Harvesting Example

Suppose you purchase 100 shares of XYZ at $10-per-share, for a total of $1,000. Over time, the price of XYZ falls to $6-per share, and your 100 shares are now worth $600. You choose to sell all XYZ shares for $600 and realize a loss of $400 on your initial investment. This loss is considered a capital loss and can be applied against any capital gains realized in the same tax year, thus reducing your total taxable capital gains.

Say you also realize $2,000 in capital gains in that same tax year. Your $400 loss can be used to offset part of those gains. After netting the capital gains and losses, you would pay taxes on $800 of your earnings at the 50% inclusion rate for capital gains ($2,000 – $400 = $1,600 * 50%).

Had you not used tax-loss harvesting, you would report $2,000 in capital gains and pay taxes on $1,000 (50% of $2,000). In this example, you are reducing your reported capital gains by 20% using tax-loss harvesting.

Key Considerations

The above example provides a simplified illustration of tax-loss harvesting. In reality, most investors hold diversified portfolios with investments across account types, asset classes and sectors that require regular rebalancing and are subject to different tax treatments. This interplay can make tax-loss harvesting even more nuanced. Several other considerations should be kept in mind when tax-loss harvesting.

1. Eligible Investments

Tax-loss harvesting only applies to realized capital gains and losses in non-registered accounts. Losses within registered accounts, such as RRSPs and TFSAs, cannot be used for tax purposes, as gains and losses within these accounts are not taxed until withdrawals are made. In other words, capital losses in registered accounts cannot offset capital gains in non-registered accounts.

Alternative and private investments, such as private equity or private real estate, may also benefit from tax-loss harvesting, though challenges like liquidity, valuation, transaction costs, lock-up periods and differing tax treatments must be carefully considered.

2. Superficial Loss Rule

The Superficial Loss Rule prohibits you from claiming a tax deduction on a capital loss if you repurchase the same or identical investment within 30 days before or after the sale.

The Superficial Loss Rule is an important consideration when tax-loss harvesting, but with careful planning, you can sidestep it using strategies such as waiting 31 days before repurchasing the same investment or buying a similar but not identical investment.

3. Carry-Back & Carry-Forward Rules

Capital losses can be carried back three years or forward indefinitely to offset capital gains in those years.

For example, if you realize a capital loss in 2024, you could carry that loss back to offset any capital gains from 2021, 2022 or 2023 by filing a T1 Adjustment Request. If the loss isn’t used in the current year or carried back, it can be carried forward to offset capital gains in future years.

Final Thoughts

Tax-loss harvesting is often associated with year-end tax planning, as investors try to reduce their tax liability for the current year. However, it can be done throughout the year, especially if there are market fluctuations that create opportunities for harvesting losses. It’s important to work with an experienced financial professional like a Rothenberg Wealth Management Advisor to assess whether you can benefit from tax-loss harvesting and how you can implement this strategy to maximize your portfolio’s tax efficiency and reduce the amount of taxes owed.

Are you interested in tax-loss harvesting? Contact us by using the form below.

The new capital gains tax policy, effective from June 25, 2024, brings significant changes for individual investors, corporations, and trusts. This new policy imposes a higher tax rate on earnings from the sale of assets, like stocks or investment properties, also known as capital gains.

Capital Gains Inclusion Rate Changes

• Individual Investors:  Previously, individual capital gains exceeding $250,000 were taxed at a rate of 50%. However, under the new policy, these gains will now be subject to a higher tax rate of 66.67%. It’s important to note that this increased rate only applies to gains earned after the initial $250,000. The first $250,000 of gains within a tax year will still be taxed at the original rate of 50%.
• Corporations and trusts: Corporations and trusts, unlike individual investors, will not benefit from the lower rate on the first $250,000 of annual capital gains. Instead, they will be subject to the higher tax rate of 66.67% right from the first dollar of gains.

The increase in the capital gains tax inclusion rate will have various implications depending on your situation. For example, the new policy may affect the timing of your investment sales, as well as the types of assets you choose to invest in. It’s important for you to understand how these changes will impact your overall tax liability and to plan accordingly.

Contact Us

If you have concerns about the new policy’s impact on your investments, we are here to help. Our team at Rothenberg Wealth Management provides free, professional advice and guidance. Our advisors can help you navigate the intricacies of the new capital gains tax landscape, understand the specifics of the policy, assess your current investment portfolio, and develop a plan to minimize your tax liability.