- Tax Planning
- Investments 1: Before you Invest
- Introduction
- Know the Steps You Should Take Before You Invest
- Recognize the Ten Principles of Successful Investing
- Principle 1: Know Yourself
- Principle 2: Understand Risk
- Principle 3: Stay Diversified
- Principle 4: Invest Low-Cost and Tax-Efficiently
- Principle 5: Invest for the Long Run
- Principle 6: Use Caution if You Are Investing in Individual Assets
- Principle 7: Monitor Portfolio Performance Against Benchmarks
- Principle 8: Do Not Waste Too Much Time and Energy Trying to Beat the Market
- Principle 9: Invest Only with High-Quality, Licensed, Reputable People and Institutions
- Principle 10: Develop a Good Investment Plan and Follow It Closely
- Understand the Risks and Benefits of the Major Asset Classes
- Understand the Risk and Return History of the Major Asset Classes
- Summary
- Assignments
- Investments 2: Your Investment Plan
- Investments 3: Securities Market Basics
- Investments 4: Bond Basics
- Investments 5: Stock Basics
- Investments 6: Mutual Fund Basics
- Investments 7: Building Your Portfolio
- Investments 8: Picking Financial Assets
- Investments 9: Portfolio Rebalancing and Reporting
- Retirement 1: Basics
- Retirement 2: Social Security
- Retirement 3: Employer Qualified Plans
- Retirement 4: Individual and Small Business Plans
- Estate Planning Basics
Principle 4: Invest Low-Cost and Tax-Efficiently
Watch your costs very carefully, including costs for transaction fees, management fees, and taxes. Remember that regarding investment, a dollar saved is worth more than a dollar earned; this is because while you have to pay taxes on every new dollar you earn, every dollar you save is already taxed and can earn interest on income. Be aware that frequent trading incurs significant transaction and tax costs: keep your costs low.
Defer or eliminate taxes as much as possible. Mutual funds are required by law to distribute 90 percent of all capital gains, dividends, and interest to their shareholders each year. That means you must pay taxes on the distributions from your mutual funds each tax season, even though you may not have sold a single share of your mutual fund. Mutual funds are pass-through accounts for tax purposes. This means that the tax consequences of the mutual fund are paid by the investor, not the mutual fund. The impact of the decisions that the portfolio manager of the mutual fund makes on your taxes can be significant--choose your mutual funds wisely.
Invest tax-efficiently so you do not have to pay more than you need to in taxes. It is not the amount of money you make, but the amount of money you keep after taxes and inflation that makes you wealthy.
