Tax Efficient Portfolios
We continue to answer an often asked question (which was also asked by the same user whose another part of question was discussed in our previous newsletter July 9, 2018: Conservative Allocation Mutual Funds Based Portfolios): how to construct a tax efficient portfolio.
Tax efficient stock investments
An investor’s overall investments mainly consist of two parts: stock (equity) and bond investments. For stock investments, there are strategic (buy and hold) and tactical (active) portfolios. To avoid tax incurred in an investment lifetime, one should minimize capital gain tax, especially short term capital gain tax (investments sold in less than a year). A natural way is to buy and hold securities for a long time.
Holding a security for a long time works also for the nature of compounding (see for example, April 9, 2018: Exponential Or Compounding Nature In Investing). In general, as what we have discussed numerously times, for capitals that are deemed not to be needed for a long time (by MyPlanIQ’s standard, at least more than 15 years, preferably more than 20 years), one should really considering to invest such capitals in a long term buy and hold SAA portfolio, as long as when you start to invest, stock valuation is at a reasonable level.
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