Many investors are carefully watching the current presidential race and wondering if they should begin selling their stocks as a reaction to political poll reports. Capital gains have been discussed frequently during this campaign and each candidate has clearly stated his position on this subject. Investors are watching carefully and wondering whether or not they should sell their stocks in order to safeguard their profits.

If Senator Barack Obama is elected, he has vowed to increase the capital gains tax from the current rate of 15% to approximately a 20% rate for taxpayers earning more than $200,000 individually, or $250,000 filing jointly. Although this does not seem like a huge increase, if you have a large profit from the stock market this year, this increase could amount to a substantial amount of money that would be owed to the government from your profits.

Senator McCain, on the other hand, has stated numerous times that he would allow the capital gains tax to remain at the current rate of 15%. He does not believe that it is necessary to increase this tax and would support holding the line at 15%.

If Senator McCain becomes our next president, the large investors in the stock market can breathe easily. If, however, Senator Obama is our next president, the investors must decide if it is in their best interest to sell their stocks at a profit while the 15% rate is still in effect. This is a decision which will have to be made soon. It is important to understand that history has repeatedly shown us that a new president generally addresses his tax agendas in his first year in office.

Popularity: 5% [?]

Historically, investors have generally turned to large-cap stocks (Dow average and S&P 500’s) in poor economic times. Many have repeated this behavior in today’s market, but are finding they are not reaping the profits they might have had by purchasing small-cap (Russell 2000 and S&P’s small stocks) at this time. This strategy of buying large-cap stocks has been beneficial to investors in the past but, in 2008, the market is responding differently to the economy, as small stocks have fallen much less than the larger stocks.

Year to date, the Russell 2000 is down 6.2% and the S&P 600 declined 4.5% The large stock groups during this same period were down 15%. Both have been increasing steadily since July 15th of this year, but the small stocks have been far outpacing the larger ones, 8.5% to 2.4%.

Stocks often provide an indication of where the economy is at during a specific period of time. If the market maintains its current direction, we could be moving in the right direction. However, sudden changes often take place in the marketplace, so no one can predict what will happen next. Our decisions can only be made on past performance of the market during weak economies and direct results being seen at this time.

The most important thing to remember about your investment portfolio is to keep it diversified and well-balanced. In order to do this it is necessary to review your portfolio frequently so that you can adjust areas of profitability versus areas of loss. If you do this, you will always be ready to go in whatever direction the stock market takes you. The biggest mistake, of course, would be to put all of your eggs in one basket. This is a position you never want to take with your financial future. A good balance and diversification are the keys to success.

Popularity: 5% [?]

At least twelve major corporations have filed for bankruptcy this year. This is more than the total number who have filed over the last four years. This well supports the current state of our economy and is a sign of things to come. Almost half of these companies were in the financial or construction sector. These are the groups that have been hit hardest this year. IndyMac Bancorp, Inc. was the biggest hit and rocked the economy the most.

It is expected that this rise in bankruptcy will continue throughout the year, based on high debt levels, a weak economy, and rising raw material costs.

When examining a company, always consider a credit downgrade by a major rating agency as an indication of a problem in the corporate structure. This is not necessarily a signal for failure, but is an indication that trouble exists and a warning that this may not be a good investment at this time.

Moody’s Investment Services is a key player in evaluating the credit reliability of corporations. They have recently downgraded several companies, including AMR Corp, the parent company of American Airlines.

Before deciding to become a shareholder in a company that has filed for bankruptcy, be aware of the risks you are taking. A company who files for Chapter 11 protection has its shares de-listed from a specific exchange, but may continue to trade over the counter while in reorganization. The Securities and Exchange Commission (SEC) wants to make consumers aware of the fact that stock of companies who have filed bankruptcy is a very risky investment. When a company is liquidated, realize that the last people to be paid are the stockholders. There is almost never any money left for them and it is necessary that a consumer making an investment in a nearly bankrupt company realize the risk that they are taking.

Before investing your hard-earned money, thoroughly investigate the company and it’s credit rating. This will save you from making a poor investment for your future.

Popularity: 5% [?]

Capital gains tax has long been the nemesis of investors. No one wants to share their profits with the government. After all, it is the investors who determine where to put their hard-earned money, and why should a smart decision on their part benefit our government? Of course, the IRS sees this differently and continues to feel entitled to a share of the profit.

This year and for at least two more, investors in specific tax brackets are receiving a break and have cause to celebrate. If you meet the requirements, this is a wonderful opportunity to enjoy your investment profit without paying the capital gains tax.

Taxpayers who are holding stocks and bonds and are interested in cashing them out in the near future, have an opportunity to avoid the capital gains tax entirely from 2008 through 2010. This break could be extremely beneficial for seniors who would like to tap into some of their savings without having to pay the government taxes on the profit they’ve made. As with all such laws, there are restrictions to first take into consideration.

This opportunity is only available to single people with taxable income under $32,500. For married couples, the taxable income limit is $65,100. The catch to this is that you can only qualify for zero tax if your withdrawal, added to your annual income, keeps you within the income limits previously stated. Once you exceed these limits, the 15% capital gains tax will again apply.

It would be a good idea to begin making these withdrawals as soon as possible, so you will be able to maintain the limits while taking advantage of this recent change. This change is, at this time, only in effect from 2008 through 2010, and there is no guarantee that it will be extended.

Popularity: 4% [?]