The Hidden Cost of the FIFO Rule; How Long will Growth beat Value?
With changes coming to the tax code, we look at its impact on investors and how long growth stocks will continue to outperform their value counterparts.
As Congress works to overhaul the current tax code, the change to a “first in first out” (FIFO) mandate has strong implications for retail investors. “According to the GOP Tax Reform Framework released earlier this fall, tax reform seeks to establish a ‘simpler, fairer’ tax code ‘built for growth.’” However, the FIFO mandate “would raise taxes in unintuitive ways, distort investment behavior, and deprive investors of the opportunity to plan efficiently for retirement.”
Goldman Sachs came up with 41 global companies that have been growing sales by 10% or more for 10 consecutive years. “Growing sales by 10% or more in a single year is a challenge and there is a steep decline in the number of companies able to achieve this threshold for even two or three years.” Goldman also points out “growth typically outperforms value in periods of solid but unspectacular economic activity, as investors place a premium on growth stocks that are able to expand their top-line despite modest economic growth.”