Upfront Investor Share Market Report 11/6/10 Capital Gains Tax

It is nearly tax time again and this is one area that many would prefer not to look at. Let’s face it - most of us do not like paying tax or to be precise, paying more tax than we need to. But when it comes to the share market many investors often lose thousands of dollars because they are told by professionals to hold onto a stock that is falling in value rather than sell and pay capital gains tax.

Whilst paying capital gains tax may be less of an issue given the impact of the GFC on many portfolios, I believe now is a perfect time to review your portfolio and clean it up, so to speak. Let me explain. It is widely publicised that we should minimise the capital gains tax impact of our investments by exiting shares that are in profit and offsetting this by exiting shares that have suffered a capital loss on or before 30 June. Often I have found that when investors clear out the deadwood in their portfolio to get a clear and fresh start, they feel much better, and more importantly their portfolio performance starts to improve. So my advice is to see your accountant now to see what you can do.

So what do we expect in the market?

If you have been feeling like you are on a massive roller coaster ride with your portfolio in the past few months, you are not alone. Currently the All ordinaries Index is trading around August 2009 levels, but in between then and now the market has fluctuated up and down by more than 10 per cent on several occasions. To put this into context, between March 2003 and November 2007 the All Ordinaries Index had only twice fallen greater than 10 per cent, including the 11 per cent fall into June 2006 and the 15 per cent fall into August 2007, yet in the first 6 months of this year the market has fallen twice by greater than 10 per cent.

This week the market has continued to hold above the important 4300 point level, which again increases my confidence that the low of 4194.40 on Friday 21 May was our yearly low. Given this, I still believe All Ordinaries Index has a reasonable chance of rising up to my target level of around 5200 points around late July. The only reservation I have is that it will need to get through the strong resistance around 5000 points that has turned the market twice this year, however, I believe in third time lucky.

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