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Wink Tax Services




The volatility in the stock market over the past several months has left many investors feeling uncertain about how to handle their stock investments. Is now the time to get out of the market, before a major decline occurs? Or will the market continue to climb into uncharted territory? Rather than trying to time the market, a more practical strategy may be to look at ways to increase your comfort level with your stock portfolio. Consider the following:

TAKE TIME TO RE-BALANCE YOUR PORTFOLIO. Revisit your asset allocation strategy, comparing your current allocation with your desired allocation. Due to the strong bull market of the past three years, your portfolio may be overweighed with stocks. Now may be the time to reallocate some of those stock investments to other alternatives. Even if you decide not to do anything, this review will reinforce the reasons why you are invested in stocks.

REVIEW HOW RISKY YOUR STOCKS ARE COMPARED TO THE OVERALL MARKET. One way to do this is to review betas for your individual holdings and to calculate a beta for your entire stock portfolio. Beta is a statistical measure of the impact stock market movements have historically had on a stock’s price and can be found in a number of published services. The Standard & Poor’s 500 (S&P 500) is an unmanaged index generally considered representative of the U.S. stock market and has a beta of 1.00. A stock with a beta of 1.00 means that, on average, the investment moves parallel to the S& P 500 - if the S&P 500 rises 10%, the stock will rise 10%; while the investment will decline 10% if the S&P 500 declines 10%. A beta greater than 1.00 indicates that when the stock market rises or falls, the investment will rise or fall to an even greater extent. A beta less than 1.00 means that the stock will rise or fall to a lesser extent than the S&P 500. Reviewing the beta for your portfolio will give you a rough idea of how your stocks are likely to perform in a market decline or rise. If your stock portfolio is riskier than you realized, you can take steps to reduce the risk by reallocating.

INVEST NEW FUNDS IN STOCKS THAT ARE LESS VOLATILE THAN THE MARKET. When investing new money in stocks, first check the beta of the stock. Consider investing in stocks with betas lower than 1.00 so that you will be less impacted by any market declines.

PLACE STOP-LOSS LIMIT ORDERS FOR YOUR STOCK INVESTMENTS. In order to shield your gains from a potential market decline, consider placing a stop-loss limit order, authorizing your stock to be sold when it reaches a predetermined price. When doing so, it is important to set an appropriate selling price. Be sure to review how much a particular stock can fluctuate on a typical trading day. You might set a price that is 10% below current prices for low-volatility stocks and a price that is 20% below current prices for high-volatility stocks. Also keep in mind that if your stock declines significantly in one day, the price may go right past the price you set for your stop-loss limit order. Since the stock never traded at that price, your order won’t be executed.

CONSIDER SELLING STOCKS TO PROVIDE CASH NEEDED IN THE SHORT TERM. If you are counting on your stock investments for short-term cash needs, such as to supplement your retirement income in the next couple of years or to pay for your child’s college education when he/she starts college in three years, look for an appropriate time to sell the stock you will need. With short-term needs, you may not have time to wait for your stocks to rebound after a market decline.

STOP INVESTING NEW FUNDS IN STOCKS. Instead, invest in other asset alternatives. The advantage of doing this instead of simply selling and reallocating your current stock holdings is that you do not generate a tax liability.

If you’d like help implementing strategies that will make you more comfortable with your stock holdings, just call us at (800) 878-4036.


In order to determine if your family qualifies for college financial aid, you must complete a needs analysis. After January 1 of the year your child will enter college, you must fill out the "Free Application for Federal Student Aid" as well as any other forms required by the colleges your child is applying to. The forms are used to determine your expected family contribution, which is the amount you will be expected to pay annually toward college costs. The formula assumes a frugal lifestyle and does not take actual expenses into account (Source: College Board, 1997).

If college costs exceed your required contribution, financial aid officers will try to find aid to make up the difference, using grants, scholarships, work programs, and student loans.

Your contribution will generally remain the same regardless of whether your child is attending a public, private, or Ivy League college. Also, the amount a family is expected to contribute remains the same whether one or several children are attending college (Source: U.S. News & World Report, September 8, 1997).

In order to help maximize the amount of financial aid your child could receive for college, consider the following tips:

APPLY TO SEVERAL COLLEGES AND EVALUATE THE AID PACKAGE OF EACH. Your expected contribution and the amount of financial aid can vary significantly between schools, making it advantageous to apply to several. Take care to evaluate the types of financial aid being offered. Grants, which do not have to be repaid, are more desirable than loans, which must be repaid.

ADHERE TO APPLICATION DEADLINES. Schools typically first evaluate the applications that were submitted on time. Anyone who files late is evaluated later, after a large amount of available grants and work/study programs have been given away.

NEGOTIATE WITH THE COLLEGE IF YOU ARE NOT SATISFIED WITH THE AID PACKAGE. If there have been significant changes in your financial situation since you filled out the aid forms, call the college and explain. If your child has received a much larger aid package from another college, check and see if the college of your choice will meet that package.

BE COGNIZANT OF HOW THE FINANCIAL AID SYSTEM EVALUATES YOUR INCOME AND ASSETS. Carefully evaluate whether assets designated for college should be placed in your child’s name or your name. Your net worth, as defined by the financial aid system, includes bank accounts, stocks, bonds, and mutual funds, but not retirement funds, insurance, or annuities. However, individual colleges may have different criteria for certain assets. Loans against assets, such as mortgages, home-equity loans, and margin loans, are deducted from your net worth, but consumer loans are not. If you expect to sell assets such as stocks to pay for college, keep in mind that any capital gains will be included in income. In order to be excluded from the financial aid formulas, your investments would have to be sold before January of your child’s junior year of high school.


One of the most commonly used measures of stock value, both for individual stocks and the market as a whole, is the price-earnings (P/E) ratio. A P/E ratio is calculated by dividing the price of a single share of stock by the company’s per-share earnings. For example, a stock selling at $50, with $2 per share of earnings, would have a P/E ratio of 25.

P/E ratios can be calculated using different earnings numbers. Trailing P/E ratios, which are typically reported in newspapers, use earnings per share for the most recent four quarters. Forward P/E ratios, on the other hand, use forecasts of earnings per share. A significant factor in the level of P/E ratios is investors’ expectations about future earnings. Confidence that a company will improve its profitability or remain highly profitable generally results in a high P/E ratio. If profits are threatened or weak, the P/E ratio is likely to drop.

P/E ratios for the overall market will also change due to broad, market conditions and investors’ views on the desirability of stocks compared to other types of investments. For example, in the 1960s, when interest rates were low, P/E ratios in general were high. A broad rule of thumb at that time was that the P/E ratio of a company was twice its growth rate. In the mid-1970s to early 1980s, when inflation became a concern and interest rates rose, P/E ratios generally decreased. At that time, stocks often had P/E ratios that were less than their growth rates. Now P/E ratios are at relatively high levels again.

Currently, the P/E ratio of the S&P 500 is 28.27 (Source: Barron’s, April 20, 1998).*

There is no absolute measure of what P/E ratio should be paid for a given company experiencing a given growth rate. P/E ratios can fluctuate significantly over time and among companies and industries. It generally helps to follow the prices, earnings, and P/E ratios of stocks you are interested in, along with companies in similar industries, to develop a feel for how the P/E ratios fluctuate. Reviewing a company’s P/E ratio for prior years can also be helpful. If a company’s growth rate in the past is expected to be the same in the future and market conditions are similar, then you might not expect much change in P/E ratios. But you also need to evaluate whether changes to the company, its industry, or the stock market would cause an increase or decrease in a company’s P/E ratio. Please call if you’d like help evaluating the P/E ratios of stocks you are interested in.

* The Standard & Poor’s 500 is an unmanaged index generally considered representative of the U.S. stock market. Investors cannot invest directly in an index. Past performance is no guarantee of future results.


Dividend yield is calculated by dividing a stock’s annual dividend payment by its current price. When investors are optimistic about the future prospects of market and interest rates and inflation are low, dividend yields tend to be low. Dividend yields tend to rise when inflation and interest rates are high or investors are pessimistic about the prospects for stocks.

Dividend yields for stocks in different industries vary significantly. Companies in mature or heavily regulated industries, such as utilities, banks, and real estate investment trusts, tend to pay higher dividend yields than growth companies, which tend to retain earnings to finance future growth or to pay for research costs, thus paying little, if any, dividends.

Historically, dividend yield has been viewed as an important indicator of value since it has represented an important component of total return for stocks. For example, for the period 1926 to 1997, dividends represented approximately 41% of the total return for the Standard & Poor’s 500* (Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook).

One factor that may support a trend toward lower dividends is the difference in the tax treatment of dividends and capital gains. Since dividends are treated as ordinary income, many investors prefer capital gains. With capital gains, the investor can control the timing of the gain and will generally pay lower income tax rates on gains. Also, investors now have a greater understanding of the stock market and information regarding the performance of companies is widely available, so investors are more comfortable allowing the company to retain earnings.

* The Standard & Poor’s 500 is an unmanaged index generally considered representative of the U.S. stock market. Investors cannot invest directly in an index. Past performance is no guarantee of future results.



Our role is to serve as a financial consultant to out clients. We do not attempt to replace any other advisors a client may have (e.g., attorney, accountant, etc.), but with the client’s permission, we attempt to coordinate our efforts with those of any other advisors.

We can provide assistance in several areas, including:

  • Overall financial consulting
  • Tax Strategies
  • Investment counseling
  • Retirement planning
  • Insurance analysis
  • Estate analysis

Our recommendations are tailored to help you meet your needs. We do this by reviewing the offerings of major financial institutions and recommending those we believe to be most suitable for our clients. We have a conservative philosophy regarding products. We prefer those developed by institutions with impeccable financial credentials and a long history of solid performance and good client relations.



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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright © 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017