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

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Tax Efficient Investing Potential Alpha? David E. Hultstrom, MBA, CFP Slide 2 Outline 1.Portfolio Turnover 2.Asset Location 3.Products Slide 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 Slide 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 Nave allocation = 6.89% net return Optimal allocation = 7.36% net return Slide 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 Slide 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 Slide 7 Products Miscellaneous Deductible IRA v. Roth IRA Index funds & ETFs Core & Satellite approaches Fee & Commission efficiency Slide 8 David Hultstrom, MBA, CFP Financial Architects, LLC 804-795-5500 DEH@FinancialArchitectsLLC.com www.FinancialArchitectsLLC.com Contact Information

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