By Alexander Green, Chief Investment Strategist, Investment U
- How can I secure the highest return with the least amount of risk?
- How can I protect both profits and principal?
- What can I do to build wealth and guarantee my investment portfolio will be worth more in the future?
How To Build Wealth Pillar 1: Stick to Our Asset Allocation Model
Diversity Doesn’t Mean 3 Different Tech Stocks
The Foundation of Our Philosophy
How To Build Wealth Pillar 2: Adhere to the Oxford Safety Switch
Let Your Winners Ride
And Cut Your Losses Early
How To Build Wealth Pillar 3: Size Does Matter Understand Position-Sizing
Don’t Fall in Love with an Investment
You Can Afford the Hit
How To Build Wealth Pillar 4: Cut Investment Expenses, and Leave the IRS in the Cold
Just Say No To High Fees
5 Tax-Managing Tips (Reducing Expenses Helps To Build Wealth)
- Stick to quality. Higher quality investments mean less turnover. And less turnover means less capital gains taxes. The less you trade your core portfolio, the less tax liabilities you incur. As Warren Buffett warns, “the capital gains tax is not a tax on capital gains; it’s a tax on transactions.”
- Try to hang on 12 months. Anything sold in less than 12 months is a short-term capital gain. And short-term gains are taxed at the same level as earned income, which can be as high as 38%. But long-term gains are taxed at a maximum rate of 20%. Even better, do your short-term trading in your IRA, where the gains are tax-exempt.
- When you stop out in less than 12 months, offset your capital gains with capital losses. The IRS allows you to offset all of your realized capital gains by selling any stocks that have joined the kennel club. You can even take up to $3,000 in losses against earned income. Not selling your occasional losers is not only poor money management; it’s poor tax management.
- Avoid actively-managed funds in your non-retirement accounts. Managed funds often have high turnover and Federal law requires them to distribute at least 98% of realized capital gains each year. You can get hit with a big capital gains distribution even in a year when the fund is down. In parts of Texas, this is known as “the double whammy.”
- Own high-yield investments in your IRA, pension, 401K or other tax-deferred account. There’s no provision in the tax code to offset your dividends and interest. So do the smart thing. How to do this? Own big income-payers like bonds, utilities and real estate investment trusts (REITs) in your IRA.
|Average Portfolio||Oxford Portfolio|