Tax Efficient Investing – Potential Alpha?

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Tax Efficient Investing Potential Alpha?. David E. Hultstrom, MBA, CFP. Outline. Portfolio Turnover Asset Location Products. 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 - PowerPoint PPT Presentation

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<ul><li><p>Tax Efficient Investing Potential Alpha?David E. Hultstrom, MBA, CFP</p></li><li><p>OutlinePortfolio TurnoverAsset LocationProducts</p></li><li><p>Portfolio TurnoverGood vs. Bad TurnoverExample:10% return, 20 year horizon, 15% capital gain bracket, ALL gains long term100% turnover = 8.50% net return50% turnover = 8.60% net return10% turnover = 8.95% net returnStep-up on death</p></li><li><p>Asset LocationExample:60/40 allocation, 50/50 deferred/taxableStocks 10% return, 10% turnoverBonds 4% returnTaxes 15% CG vs. 35% OI20 year horizon, annual rebalancingBad allocation = 6.44% net returnNave allocation = 6.89% net returnOptimal allocation = 7.36% net return</p></li><li><p>Products Permanent Life InsurancePermanent Life Insurance ONLY:After maximizing tax advantaged options ANDIf long-term (&gt;20-year) need ORIf GUARANTEED to NEVER need the $ANDIf good pricing</p></li><li><p>Products Variable AnnuitiesAlmost NEVER Example:65 bps marginal cost (Vanguard)10% return, 100% turnover! (but LT)Taxes 15% CG vs. 25% OIBreakeven 36 years@ 10% turnover &gt;100 years@ 35% OI 63 yearsAnnuities INCREASE standard deviationDeath is TERRIBLE</p></li><li><p>Products MiscellaneousDeductible IRA v. Roth IRAIndex funds &amp; ETFsCore &amp; Satellite approachesFee &amp; Commission efficiency</p></li><li><p>Contact InformationDavid Hultstrom, MBA, CFP Financial Architects, LLC 804-795-5500 DEH@FinancialArchitectsLLC.com</p><p>www.FinancialArchitectsLLC.com </p></li></ul>