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Tax-Efficient Investing, Part 1

Updated: May 19

RL063 - Retirement Lifestyle: Tax-Efficient Investing, Part 1


Today on the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson address one of the least understood yet important principles of outsmarting the tax code-- tax allocation. They analyze the different tax brackets, the concept of asset allocation, and the tax-efficient investment strategy.

[06:05] The Concept of Asset Allocation

[10:24] It's Never too Late to Think About a Tax-Efficient Portfolio

[15:31] Analyzing the Different Tax Brackets

[19:54] Stocks Versus Mutual Funds

[23:40] Differentiating a Tax-Deferred Account from a Tax-Free Account

[26:30] How to Strategically Switch Through Different Tax Accounts

[28:50] Portfolio Items Commonly Found in the Tax-Free Account

[37:04] Summary of the Tax-Efficient Investment Strategy


For the full show notes keep scrolling down!


Roshan Loungani can be reached at roshan.loungani@aretewealth.com or at 202-536-4468.


Erik Olson can be reached at erik.olson@aretewealth.com or 815-940-4652.


Adrian Nicholson can be reached at adrian.nicholson@aretewealth.com or at 703-915-8905.

Listen to the whole episode on our website here: https://www.retirewithroshan.com/podcast


OR for links to your favorite platform like Spotify, iTunes and so on go here:

https://anchor.fm/roshan-a-loungani/episodes/RL063---Retirement-Lifestyle-Tax-Efficient-Investing--Part-1-e107u1b


Select episodes, like this one can be found on YouTube:

https://www.youtube.com/channel/UC0ZZPM3xk6onXNpb1ceAkCg




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Full Show Notes:



The concept of Asset Allocation

Forget savings, buying a home, or signing up for student loans; the biggest financial decision you'll ever make is funding your retirement life. Think of it this way; you're going to spend 20, 30, or even 40 years of your life without a regular pay-cheque. So, how best are you going to live through that period of life comfortably? Maybe it's having tons of cash saved up or having several income streams from your previous investments. These can last you a couple of years, but they won't sustain a long-term retirement phase without proper asset allocation.

Today we focus on one of the most advantageous yet least understood principles of outsmarting the tax code: tax allocation. Knowing the most advantageous tax brackets to place various parts of your portfolio will give you an edge that most investors don't know exist. Nevertheless, you first need to understand how the three tax brackets (taxable accounts, tax-deferred, and tax-free accounts) operate.


It's Never too Late to Think About a Tax-Efficient Portfolio

Although tax laws and rates may change over time, or vary from state to state, the long-term value of having a tax-efficient portfolio does not. The reason? Unnecessary taxes can significantly impact your investment returns every year, potentially jeopardizing your long-term goals. We all want to have money working for us, yet most investors begin growing their portfolios without truly understanding their primary goal. Unfortunately, the vast majority of everyday investors never take into account the tax-efficiency aspect of their investments. No matter what stage of life you're in, it's never too late to think about tax-efficient investing. However, undertaking a tax-efficient makeover isn't necessarily tax-free. So, before performing any investment changes, talk to your financial advisor on the best way to achieve the best gains.


Stocks Versus Mutual Funds

Investing can be complicated, overwhelming, and profitable, all at the same time. Moreover, whichever investment option you choose to pursue, there is no guarantee that you'll make money. The two main investment vehicles that most people are familiar with are stocks and mutual funds. Stocks are an investment in a single company, while mutual funds have several investments, sometimes hundreds of stocks all in a single fund. The other way to think about stocks is that investors can sell anytime they want.

In contrast, mutual funds sorely depend on the fund manager's willingness to sell. Both mutual funds and stocks can be profitable. Still, determining which works best with your investment strategy largely depends on three factors; timeframe, risk-reward, and expenses.


Tax-Efficient Investing

You probably already know that if you sell an investment, gains from the investments might be subject to taxes. The good news is that you can avoid these taxes if your investment distributes its earnings as dividends or capital gains. First, you need to understand that some investments are more tax-efficient than others. For example, municipal bonds are extremely tax-efficient when thinking about bonds since accumulated interest is not taxable at a federal level.

Furthermore, interest income often enjoys tax exemption at both the state and local levels. These bonds are good candidates for taxable accounts because they're already tax efficient. In conclusion, whether you're saving for retirement or to grow your portfolio, the core principle of investing is to minimize taxes.



All opinions expressed by podcast hosts and guests are solely their own. While based on information that they believe is reliable, neither Arete Wealth nor its affiliates warrant its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only, and should not be regarded as specific advice or recommendations for any individual. Before making any decisions, consult a professional.


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