Winans Investments Reports: It's Not Different This Time - Higher Investment Taxes Will Change the Financial Game!

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Winans Investments

Dec 07, 2012, 02:00 ET

NOVATO, Calif., Dec. 7, 2012 /PRNewswire/ -- As the investment world braces for dramatic changes from Washington, history provides us with some important clues as to what investors will face if taxes on investment profits significantly increase.

There have been two long periods in U.S. history where the tax on long-term capital gains was above 30% (1934-1941 and 1970-1979). Although one was a period of mild deflation and the other during rapid inflation, there were noticeable investment trends that occurred.


Average                   


Annual Total Return:   

Since 1980        

 1934-41  

1970-79




U.S. Common Stocks   

12.1%

6.5%

7.9%

U.S. Corporate Bonds      

9.8%

6.0%

8.0%

U.S. Preferred Stocks       

12.3%

8.9%

4.6%




Inflation (CPI)                  

3.6%

1.6%

7.1%




% Of Time


Negative Years:      

Since 1980          

1934-41          

1970-79

U.S. Common Stocks           

19%

63%

30%

U.S. Corporate Bonds          

13%

13%

20%

U.S. Preferred Stocks               

19%

13%

40%

The tables above clearly show that during periods of high taxation on investments, rates of return decreased and volatility increased when compared to the last 32 years.

This is especially true for common stocks. During the two high-tax periods studied, common stock prices stayed in volatile trading ranges where double-digit negative years happened on average 44% of the time. The low rate of price appreciation led to market multiples declining from an average of 18 times earnings to 7, and average dividend yields climbing by 66% as companies paid out more earnings to keep anxious investors content.

So, what should investors do?

Ken Winans is a successful investment manager, award-winning financial history author and popular guest on national radio shows. He believes that successful investing in this "new normal" requires "new tactics":

  1. Corporate bonds offer comparable returns without the volatile declines. Passive investors should focus on income generation from corporate bonds and preferred stocks through a laddered strategy rather than depending on price appreciation for profits.
  2. Common stock investors need to adopt an active investment strategy that uses time-tested technical indicators to identify intermediate trends; "stock picking" investment selection and a disciplined strategy for re-balancing the portfolio into cash during bear markets.

Remember, the investing herd frequently repeats the same financial mistakes as past investors on the premise that, "It's different this time!" Common sense goes a long way investing, and those who ignore history are bound to be future victims of it.

Additional information is available upon request at www.winansinvestments.com

SOURCE Winans Investments

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