Indexor

Tuesday Outlook: Commodities, Global Markets

Dave:

I always appreciate your work. In your chart of WIP you noted: "Are WIPs better than TIPs? Some must think so." There is a big tax difference between the two. Phantom income.

The drawback to holding TIPs in a taxable account is that they generate "phanton income." The principal value is adjusted annually to reflect inflation, and you're forced to pay taxes on the increase - even though you don't actually receive the money until you sell the bond or it matures. iShares will send you a 1099 that calculates your phantom income each year but TIP remains best for QUALIFIED ACCOUNTS only.

WIPs are somewhat different. The monthly distributions made by WIP include the coupon interest accrual and the CPI adjustment on the principal. The fund is able to pay this out by selling a very small
portion of the portfolio every month that there is a positive CPI
adjustment. Since the CPI adjustment is paid out every month, from a tax standpoint, there is no "phantom income" realized by the shareholder.

Hope this helps.

How ETFs and ETNs Are Taxed

Tom:

Muni Bond Holding Period: You must hold Muni ETFs for 6 months before harvesting losses. Any losses realized under the 6-month time frame will first have all the tax-exempt income that is received,
deducted from that loss. Additional losses will qualify as a short-term capital loss.

Risk Management in Trending Markets

Exceptional article! Thank you for sharing your work. I look forward to reading your articles in the future.

Thursday Outlook: Commodities, Emerging Markets

David:
As they say "A picture is worth a thoasand words" and your posts always prove this point in spades. In my opinion, you provide the most entertaining views on this site. Thank you.

The Good, the Not-So-Bad and the Ugly Commodites ETFs

Regardless of whether you are bullish or bearish on commodities, the reality is that this asset class has been trending to the upside for some time. In my humble opinion, common sense dictates 5-10% of a portfolio should be allocated here, if only to take advantage of the negative correlation. 5% could be placed into a broad-based ETF such as DBC, DJP or GSP and 5% in a more concentrated issue such as IAU, DBA, OIL etc. Of course, if you are more bullish, use techinal analysis or are comfortable closing out of reversing positions, those amounts could be tripled for as long as stocks and bonds continue deteriorating.