The Advisor Institute: Coach's Corner
'Should I stay or should I go?'

Practical messages intended to help you elevate the success of your practice.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By David GordonDirector, Eaton Vance Advisor Institute

      Fear of missing out (FOMO) is a new name for an old quandary. Regret is a burden nobody wants and is why "regret aversion" — a formal name for FOMO — is such a difficult behavioral bias to overcome.

      Regret aversion can lead investors to hold on to positions longer than they should:

      • If the value of the position is in decline, they are afraid it will rebound right after they sell it
      • If the value of their position is rising, they are afraid to miss an even higher valuation by selling too early

      The threat of tax changes only compounds regret aversion. For example, investors with highly appreciated positions can be torn between two possible regrets:

      • Selling "too early" if an anticipated capital gains tax increase fails to materialize
      • Selling "too late" if an anticipated capital gains tax increase goes into effect before they have sold the position

      Help clients avoid binary decisions

      Regret aversion in the face of potential tax changes might leave clients singing The Clash's 1982 hit "Should I stay or should I go?" Either/or dilemmas like this one arise from a mistaken all-or-none view common to holders of concentrated positions: "I'll keep all of it or none of it." Are those really the only two options? Of course not.

      As an After-Tax Advisor, you can have conversations that help clients conquer regret aversion and avoid binary decisions.

      • "We don't have to be all right or all wrong. We could consider selling a portion of the concentrated position now. If the capital gains tax rate increases, you may avoid the higher tax. If it stays the same, you still hold half the position."
      • "One small step we could take is funding your charitable goals by donating some or all of your low-basis stock to a 501(c)(3) charity or opening a donor-advised fund (DAF)."
      • "Let's consider for a moment if resetting the cost basis by selling the position today is a possible option. This allows you to incur today's capital gains tax rate and repurchase the same stock in the future. You'll want to meet with your tax professional to be sure we're doing it the correct way."

      Discussing alternatives does not require you to know which tax changes will happen and which will not. The goal of these conversations is to help clients address both regret aversion and binary decisions, proactively and collaboratively.

      Bottom line: Rather than waiting for tax changes to materialize, an After-Tax Advisor can help reduce clients' FOMO by discussing possible approaches with clients.

      tax forward