- Tax Planning
- Investments 1: Before you Invest
- 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
Case Study #1
Data:
Bill and Sally invested in several mutual funds last year (these funds are shown in the following table—the returns on these funds are hypothetical). They are in the 30-percent federal marginal tax bracket and the 9-percent state marginal tax bracket. Remember that stock dividends and capital gains are taxed federally at 15 percent.
Calculations:
a. Calculate the before-tax and after-tax return on each of the funds in their portfolio.
b. Calculate the before-tax and after-tax return on your overall portfolio. Note that the first three funds are taxable, the municipal bond fund is federal tax-free, and the Treasury bond fund is state tax-free.
Funds Ending Beginning STCG LTCG Stock % of total NAV NAV distr. distr. distr. portfolio Vanguard ST bond 10.25 10.00 20 .05 0.00 20% Fidelity 500 index 110.00 100.00 0.00 0.00 2.00 50% Schwab small-cap 115.00 110.00 5.00 5.00 2.00 10% American muni bond 5.25 5.00 .05 .20 0.00 10% Scudder T-bond 52.00 50.00 .25 .25 0.00 10%
Notes: STCG distr. = short-term capital gains distributions; LTCG distr. = long-term capital gains distributions; stock distr. = stock dividend distributions; and % of total portfolio = the beginning weight of the assets in the portfolio. Remember that your overall portfolio’s return is equal to the return of each asset multiplied by the weight of each asset at the beginning of the period.
