Well, it must be. The only way I know to do that is to be the IRS.
Seriously. Taxes are a big “problem” that changes the real-world equation for buying and selling stocks.
Let’s say you start with a dollar. One dollar. And, through your investing brilliance, you turn that dollar into $100,000. Congratulations. Now, however, you feel that your current investment strategy and holdings don’t suit your purposes. Maybe you want to diversify? Or, maybe you want to become an angel investor and invest in small startups and restaurants (why do doctors do this? Is this something they teach in medical school?)?
Let’s say that you have the goal of doubling your portfolio. You want your new strategy to take you from the current $100,000 to $200,000.
So you need an investment that will double, right?
You need an investment that will more than triple!
What do you mean Dave? I have $100,000, and if I want to get from there to $200,000, I need to double my investment.
Only in the real world of math and numbers.
In the world of taxes, when you sell your current holdings you owe taxes. Let’s assume an overall tax rate of 40% (including state/local/federal, whatever… it’s probably more, but 40% illustrates the point). Your $100,000 is made up of $99,999 in gains. That means you owe taxes on those gains… at the 40% rate (and rounding) that means that after taxes you only have $60,000 to invest.
If you want to get to from $60,000 to $200,000 you need to more than triple your money.
I’ve been using large round numbers just to make a point. The math is the same if we’re talking about $10,000 in growth. The instant you realize any growth, even if it’s part of an adjustment to your portfolio, you have to pay taxes. You instantly reduce your portfolio value dramatically.
Banks are telling us a “buy-and-hold” strategy doesn’t work anymore. When we listen, we feed the IRS (seemingly more than we feed ourselves). We take all of the risk, the IRS gets almost half of the reward. Forget the fairness of it for a moment. You need a strategy that helps your money work for you, minimizing your tax obligation and maximizing your financial stability. The Elephant’s Paycheck Blueprint eliminates most fees, commissions, and and puts a plan in place to minimize taxes over the long haul too. Curious? Why not sign up for our free email course? It’s for people rolling over their 401K’s for now, but the principles apply to non-retirement investing as well.
Let me know what you think