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Tax Efficient Investing – Potential Alpha? David E. Hultstrom, MBA, CFP.

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Presentation on theme: "Tax Efficient Investing – Potential Alpha? David E. Hultstrom, MBA, CFP."— Presentation transcript:

1 Tax Efficient Investing – Potential Alpha? David E. Hultstrom, MBA, CFP

2 Outline 1.Portfolio Turnover 2.Asset Location 3.Products

3 Portfolio Turnover Good vs. Bad Turnover Example: –10% return, 20 year horizon, 15% capital gain bracket, ALL gains long term –100% turnover = 8.50% net return –50% turnover = 8.60% net return –10% turnover = 8.95% net return Step-up on death

4 Asset Location Example: –60/40 allocation, 50/50 deferred/taxable –Stocks – 10% return, 10% turnover –Bonds – 4% return –Taxes – 15% CG vs. 35% OI –20 year horizon, annual rebalancing –Bad allocation = 6.44% net return –Naïve allocation = 6.89% net return –Optimal allocation = 7.36% net return

5 Products – Permanent Life Insurance Permanent Life Insurance ONLY: –After maximizing tax advantaged options AND –If long-term (>20-year) need OR –If GUARANTEED to NEVER need the $ AND –If good pricing

6 Products – Variable Annuities Almost NEVER – Example: –65 bps marginal cost (Vanguard) –10% return, 100% turnover! (but LT) –Taxes – 15% CG vs. 25% OI –Breakeven – 36 years 10% turnover – >100 years 35% OI – 63 years –Annuities INCREASE standard deviation –Death is TERRIBLE

7 Products – Miscellaneous Deductible IRA v. Roth IRA Index funds & ETFs Core & Satellite approaches Fee & Commission efficiency

8 David Hultstrom, MBA, CFP Financial Architects, LLC Contact Information


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