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Episode 52: Tax-Managed Investing with Phillip Ramsey and Bryan Dewhurst
167 Plays6 years ago
If you’ve followed us for any length of time, you know how we feel about IRAs and 401(k)s. They are great, but hardly the only game in town, especially if you don’t want all your money tied up until you are 59.5. That’s where tax-managed investing might come in handy. Investments are a great source of residual income, but there is a lot of mystery and fear surrounding investments.
That’s why we wanted to do a deep dive in this episode. Tax-managed investing isn’t new. It’s been around for a while. But it has recently gained a lot of popularity. As consumers and advisors become more and more tax-conscious, we wanted to dig into this topic so you have a starting point for knowledge on what can seem like a tricky subject.
Why would you choose this strategy (or set of strategies) in addition to an IRA or other retirement accounts? How do taxes affect the rate of return on my investments in a given year? Find out the answers as we tackle these questions and more.
what you will learn in this episode:- How to leverage tax-managed investing instead of or along with traditional retirement accounts
- How money managers are able to mitigate tax liability within portfolios
- What tax loss harvesting is
- Why we focus on clients and hire experts to manage portfolios
- The differences between short-term and long-term holdings
- How to use dividend-paying stocks along with tax-managed investing strategies
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Transcript
Introduction to Pursuing an Uncommon Life
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit. Welcome to the Uncommon Life Project podcast. We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life.
Unique Financial Perspectives from the Hosts
00:00:27
Speaker
A life worth celebrating and savoring. Please welcome your hosts, Brian Dewhurst and Philip Ramsey.
00:00:34
Speaker
Hello and welcome everybody to another episode of The Uncommon Life Project, where I'm your host, Philip Ramsey. And I am Brian Dewhurst. Thanks for tuning in. Man, we are grateful. If you are just tuning in for the first time, we are advisors that have a whole different view on finances. I think it's refreshing. Our clients think it's refreshing. We hope you think it's refreshing. Today is a duo cast between Brian and yours truly. And we're talking about a strategy that we are getting hyped up about.
Mindset Shifts for Fulfillment and Passion
00:01:02
Speaker
Long story short if i was gonna boil down our philosophy in a quick synopsis i would say. Change your mindset about how you live everyday love what you do and then think about retiring from what you love to do you don't do it you just want to keep doing it you want to keep refining it and making it better.
00:01:22
Speaker
and doing it more efficient. And so we challenge our clients to not only think long-term, but short-term. What is it that you are made to do? What are the gifts God's given to you, and how can we start investing in those? Once we do, you're gonna like your life a lot more, you're gonna understand what you're investing in, and things get a lot clearer quickly. So, how'd I do? I think he nailed it. Okay. I always like when you just say you are your best asset, so.
00:01:50
Speaker
Yeah, you are your best asset, but not a lot of people do help you invest in that asset, which is yourself. This is a quick, quick aside. Thank you.
00:02:01
Speaker
I saw on this group thing that we have, like this neighborhood thing, somebody asked, I'm starting to get more money. My husband just got a, or fiance just got a promotion. I'm looking for a trusted advisor and you know, millions of recommendations come up, referrals and all this stuff. It's just sickening. It isn't sickening. It's great. Everyone thinks they have a trusted advisor and I'm not saying they're not, but there was one comment that I wanted to address.
00:02:25
Speaker
The people who are like, well, whatever you do, go with a fee only because they're most in line with your success. And I would say maybe. And what I say maybe for is because are they really helping you get to your goals? Like what if this person and her fiance decide that paying off their house is their best use of their money? You go to a fee only advisor and see how that goes.
00:02:52
Speaker
That's my point. Yeah. It's just not going to be something that really is going to be in line with, Oh my goodness. Like that's an amazing goal that you have to pay off your house or Hey, I want to start a business. Go to a fee only advisor and see how that goes. It's just, they're not getting paid on their advice they're giving you. So we have adopted a different approach where we are a hundred percent in it for our clients, goals and objectives. And so we, we do a subscription model here at uncommon wealth and that gets you a plan and kind of a course of action for the next year.
00:03:22
Speaker
We also can do asset center management in a fee-based way. But first, we think that we have to have a good plan that we're working for. What's the roadmap? And our first questions that we ask people have nothing to do with their money. Nothing. It's really about how has God uniquely gifted you? What are you passionate about? And if you did X in retirement, what would it be? What would your retirement look like if money were no object?
00:03:48
Speaker
and then challenging people to try to figure out how to get there quicker and one thing that i don't love about these retirement plans i'm talking a lot because at the end of this brian
Rethinking Retirement: Time Freedom vs. Traditional
00:03:58
Speaker
is gonna talk about so. If you're waiting to hear brian it's coming but my biggest things with these retirement accounts is it puts an age band on when you can access your money.
00:04:08
Speaker
When you can move into this next phase of life, which is what everyone calls retirement, we would call time freedom. And if you really think to yourself, hey, in retirement or in time freedom, if money were no object, I'd still be doing things more proactively and be working and serving other people. I want to talk to you.
00:04:26
Speaker
Those are our people. The people who don't know what they want or in question of where they're going, we're just not very good advisors because we can never tell people what they want, nor is that our business. So if people come with us and tell us the most specific goals, no matter how audacious they are, we love those people. We'll help you get there.
00:04:46
Speaker
So there's my commercial.
Tax Managed Investing: Benefits and Strategies
00:04:48
Speaker
I don't know if it felt like a commercial. I didn't mean it to, but I think it's important just to walk through how we get paid, what business we're building and why I think we're a little bit different than the average person. So, okay, but what are we talking about today has kind of in line with what I was talking about retirement accounts, um, after tax accounts, pre-tax accounts. So it kind of gets heavy. So we'll try to make it as light as possible and we'll go from there. So.
00:05:14
Speaker
What do we talk about today? We've got tax managed investing. What does that mean? Yes. A million dollar question. So there's a lot of emphasis put on building an account balance like in your 401k or your Roth IRA or retirement account. But there's not a lot of emphasis put on building what we would call like an after tax brokerage account. Whenever you talk about
00:05:39
Speaker
kind of building wealth you gotta talk about like what type of an account or the other word we use is registration how is your account titled. So this is kind of like bank money in the sense you pay tax on it typically for husband and wife we have a joint account with right to survivorship is how it's titled or registered.
00:05:58
Speaker
And so then if you're investing in the market, you're taxed on short-term and long-term capital gains, any dividends or interest that was paid, that type of stuff. You're taxed in the current year. It's not tax protected like your IRA or Roth. So in that, well, we have a lot of young couples that are interested in retiring sub or before 60 years old or 59 and a half where all these retirement accounts kick in.
00:06:22
Speaker
I just want to reiterate that we have a lot of account, a lot of clients who are trying to retire before the 59 and a half. Yep. That's, I think one, a huge deal. Cause I don't even think people even can comprehend what that means. Right. They've never heard of that. They've never talked to an advisor that actually helps them this way. So we've got a lot of them and they're dominating by the way. And when you actually have that mindset, you can't think in terms of the traditional planning. Cause a lot of the, if you're over funding or,
00:06:51
Speaker
Maxing out these foreign k roth area stuff like that money is not gonna be available to you until the night at half so this is a way to build an account balance an after-tax account that has no age banding or strings but it does cost you in tax every year and so we want to highlight is kind of a strategy called tax management vesting where you still grow your money you can still be aggressive.
00:07:13
Speaker
investing in the stock market, but utilizing some techniques to help mitigate that year-over-year tax liability that you can create, especially as the balance gets built up over hundreds of thousands or millions of dollars. It's just mindfulness of your overall tax liability and how this account can play into your overall tax liability, depending on where your income is coming from.
00:07:36
Speaker
And historically, for those savvy investors out there, municipal bonds were someplace where people would go. And there's a whole different treatment of rate of return when you're talking about municipal bonds, because you don't have the tax drag, the tax implications that you'll have with just another account. So that's what a lot of people would do. And then they have the special calculation, what is your actual rate of return if you didn't have to pay taxes?
00:08:02
Speaker
We're talking about that kind of style account, but not necessarily investing in municipal bonds. Right. Yeah, investing in equities. And the other side of that would be the, you know, people would buy treasuries, you know, U.S. Treasuries, which is considered to be the safest investment out there just because of liquidity and it's backed by the federal government.
00:08:22
Speaker
But those yields are so low, even municipal bond yields are so low, that if you put a million dollars into 10 year treasuries, you're getting like one and a half, 2%. And granted, you're not paying tax on that, but a lot of people need more than 15 to 20 grand a year cash flow on a million dollars. And when you're looking at, if you had a million dollar real estate project, and you're only getting 15 to 20 grand a rent, you should sell it. You should sell that.
00:08:48
Speaker
So that's why real estate is so popular. That's why we talk about it so much, but kind of focusing on this. So tax managed investing isn't new.
Investment Diversification and Risk Management
00:08:57
Speaker
It's been around for a while, but I think it's gaining a lot of popularity as people are more tax conscious and advisors are more aware of the concept. So we kind of wanted to get into today. And one of the things we're talking about too, is kind of like wealth paths. Where are we going to plow money? And everybody talks about diversification.
00:09:17
Speaker
And that's great. But there's also something to be said for concentration and doing things you understand and building a balance in one thing and, you know, kind of like shooting a rifle instead of a shotgun. So we want to build like a high caliber rifle. We want to put money into one thing. That's liquid. That's low fee. That's tax managed and also has the upside potential of the equity market. So that's kind of what we're talking about today. And this is one of the seven sources of residual income that
00:09:46
Speaker
we talk about. And I love talking about that way because it just gives people an idea of what we're talking about. Who knows what the right is for you. But I think it's important to talk to all of about all of them. And this is one of those things investing. What do I do? How do I do it? And how do I be most efficient? So I think in terms of our content, this is investments. And it's like we have it listed as the third source of residual income behind just savings return on your savings and then real estate just because most people own a home.
00:10:15
Speaker
And then, you know, you start investing from there. So this is the third source of residual income. And, you know, let's jump into it. So basically what a lot of the research shows is that, you know, there's a massive tax drag, like if you're invested in mutual funds, for say,
00:10:32
Speaker
I'm going to pick on American funds today just for the sake of our show. And before we jump in anymore, good point is compliance. You know, past performance is not indicative of future results. So we are talking about investments and you do have the ability to lose money and none of this stuff is guaranteed. And so this comes with risks. So we do have compliance and disclosures on the podcast, but I wanted to reiterate it again before we jump in.
00:10:57
Speaker
It's always important to reiterate. It makes our peoples happy. So I think a lot of people have heard about American Funds. They're one of the more storied management managers. A great company. Great company. But for tax, it's growth and it's a different purpose. Yeah. They were made popular. I think Edward Jones used them early on. Eduardo. Eduardo.
00:11:20
Speaker
So anyways, American funds had great returns over the long term and great for retirement type money. You know, IRA, 401k, Roth IRA, great money manager. We can leverage them today, you know, through RIA. So I'm not throwing them under the bus, but when you look at putting them in an after tax account,
00:11:39
Speaker
bank money american funds is focused on total return which isn't a bad thing if that's what your goal is but if your goal is to manage taxes american funds can create really large tax liabilities in a way that they manage their funds trying to just achieve total return and so if you're trying to mitigate taxes with an after-tax account while growing a balance.
00:12:00
Speaker
it can prove expensive in terms of that tax treatment and the capital gains that are triggered from how they're managing their portfolios. So if your account, like we're going to use, I probably shouldn't use percentages, but let's say your account's up 10% in a American funds type of approach, total return, you still have to pay taxes on that. So what's your actual rate of return? It's not as much as what the paper says, because now you have to pay taxes on it.
00:12:27
Speaker
Right. And they're buying and selling things throughout the year, which are triggering potential short term and long term capital gains. And then you'll get a statement at the end of the year saying, hey, you owe money on
Professional Management of Investment Portfolios
00:12:39
Speaker
this. And let's just say, let's say the last week of the year, the market, you know, like 2018, September to Christmas, the market went down 20 percent in 90 days. Well, you could have had because the way American funds invested that year, you could have had, you know, short term, long term capital gains.
00:12:57
Speaker
of whatever, 3% to 4%. And you're at the end of the year down, less than what you started and still owing tax on the money because they bought and sold stuff into a year. And so those are the things that we're talking about is you want the total return
00:13:13
Speaker
upside to the market, but if you could get it without paying capital gains tax or a limited amount of capital gains tax, you'd potentially be in a better situation given your overall tax liability from all of your sources of income. So you're telling me I could have an account that I owe taxes on, but it just went down 4%? Yeah. I'll kick in your ding ding right now.
00:13:37
Speaker
So, but I think that's just to clarify, you absolutely can. Yeah. And people have. Yeah. So that's why it's important in these after tax accounts that you really know what you're doing and what you're investing in. Yeah. Okay. So we, we leverage money managers through our, our IA. So we have other people invest and manage the money. Uh, we view ourselves more as like the quarterback and we're hiring, you know, the receiver or the running back, what I have you.
00:14:04
Speaker
And so kind of wanted to talk through how these money managers are able to mitigate the tax liability within these portfolios. The main one, one of the main ones is just centralized trading and implementation. So I mean, you're talking about companies are managing billions of dollars. So they have teams devoted to this strategy platform. And so they're able to really analyze data.
00:14:26
Speaker
and manage portfolios on a daily basis, which if you're retired or thinking about retirement, you might not be wanting to manage portfolios on an active basis. And so that is their kind of ability to centralize information and make decisions on a daily basis.
00:14:43
Speaker
two and the other main one is just what we call tax loss harvesting so to use an example is to say you bought coca-cola you know you go buy a hundred shares in your account most people just buy and hold that strategy you get the dividends hopefully the stock splits and you kinda just go about your way with these groups that manage these tax manage platforms they might buy coke a hundred different times in a given year.
00:15:08
Speaker
So they could be up on 70% of their investment in coke and they could be down on 30% of their investment in coke. But what that allows them to do is do what they kind of call like micro sales is they can go in almost every day and sell pieces that are down, which then can they can sell other stocks that are up to kind of mitigate and lock in the gains that the portfolio is achieving over the long term.
00:15:34
Speaker
but by doing that they're able to offset the capital gains of the stocks that are up by recognizing the losses of the stocks that are down. All the while staying along coke but using that ability of tax loss harvesting to mitigate the capital gains tax liability within your portfolio.
00:15:52
Speaker
And if you think about that, because active management, I think some people would be very adverse to that thinking and theory, especially advisors, the advisors that do it all. But at the end of the day, we found like this for our practice is perfect because they are experts at what they do. They can be trading in
Tax Efficiency in Investment Strategies
00:16:11
Speaker
a day. They can be doing these things on the back burner and that's all they do. Like that's what we're hiring them to do.
00:16:17
Speaker
Brian and I's job is to create the overall plan and work through different obstacles that come up every day with our clients. And there's days where I don't even look at the market once because I'm just with clients. Now, if you're wanting me to manage your money,
00:16:33
Speaker
First off, you want Brian to be managing your money, so there's better there. But you don't want us out about, you want us behind a computer. And what we're saying is we're the best in front of our clients, not in front of computers trying to make all these trades, trying to figure out, trying to do data analysis. You can see how there's a conflict there. So that's why we lean on these money managers to do exactly what they've said they're going to do and have a track record and a history of it.
00:17:01
Speaker
So another major way these companies manage the capital gains liability or tax liability within these portfolios is just understanding the age of their positions. And so if you hold something beyond 12 months,
00:17:17
Speaker
It shifts from a short-term capital gain at a higher tax rate to a lower tax rate. So they're able to manage that, manage the holding period with all these different lot sizes. Like I said, if they could own Coke in a hundred different lots or purchases, and so each one of those is going to have its own positive or negative return. It's also going to have its own date that that was purchased. And so it's going to have its own 12 month window in terms of transferring from a short term to a long term holding.
00:17:46
Speaker
So they're able to manage all of this stuff on a daily basis to mitigate your ongoing tax liability. Another major way that they're able to kind of mitigate that, and then you hear this a lot, especially with passive investing, the S&P is generating I think around like a 1.8.
00:18:03
Speaker
1.9% dividend yield. And so they don't reinvest the stocks because it basically limits them and what they're able to do from a tax management standpoint. So they would rather have the dividends pay to cash and then use those strategically to balance and manage the portfolio, investing in stocks that are potentially down,
00:18:27
Speaker
or whatever they need to do with the cash flow of those dividends, it gives them another lever to pull to manage the overall tax liability. So yeah, I mean, you really think about this. I'm going to pull out for a second because we're getting right in there. But I think it's good to do and we're going to keep doing it, so hang on. But if you had $100,000 in an account and it grew 16%, let's say, so it's up to $116,000, okay?
00:18:55
Speaker
With something like this, with minimal tax drag, you would still, maybe to the government's eyes, you only were up 4% or 3%. You're only paying tax on the 3%, but it's up 16. I call that magic. They call it just every day. But I think it's cool to think that versus an account that was up maybe 20%, but now it's got the full throttle of taxes, that's going to pull that back. Yeah.
00:19:23
Speaker
So that's what we're trying to like mitigate as Brian likes to use that tax drag in these accounts. So it really does feel like, wait, I'm up this, but I don't have to pay that. That's pretty cool. Yeah. And I think a lot of times, and we reference this in our kind of newest ebook on retirement income, there's different philosophies we get asked about a lot, you know, in terms of how to structure retirement income and how to structure assets for income.
00:19:51
Speaker
And one of those is, you know, dividend paying stocks. There's a lot of research out there, you know, just by dividend paying stocks and live off the dividends. Well, that sounds great. And I'm not saying that's not valid, but this is the account kind of doing that strategy in an after tax account with, you know, the tax managed focus.
00:20:10
Speaker
is probably the best of both worlds. Not to say you have to manage all of your IRA money, your Roth money, and your after-tax money dividend paying stocks, but this would be a great place to have dividend paying stocks, but then also utilize the strategies that are being employed here, taking the dividends in cash, tax loss harvesting,
00:20:32
Speaker
managing the hold period, all these different things, doing that with stocks because stocks don't have a fee like index or ETF index funds do and mutual funds do. So we have a money manager that does this with individual stocks. They manage the taxes and you're invested in the stock. So there's no
00:20:54
Speaker
internal expense of actually owning the stock so it's kinda like the best of both worlds and we can also do that with a self directed sleep where you know if you call and say hey. I wanna buy you know a stock that i like you know i use it all the time and it's not my portfolio we can just have you sleep that into your portfolio covered out so the money managers not charging you a fee on that.
00:21:15
Speaker
and you own that stock with your other stocks in just a brokerage account. And all that money is liquid to you and available to you all the time. So it's very easy for us to manage these types of portfolios for you through these money managers and give you kind of that philosophical approach to investing, owning stocks to pay dividends, also while managing your tax liability.
00:21:37
Speaker
So these tax manage accounts are not just using one strategy, they're using multiple.
Adjusting Investment Risks for Individual Needs
00:21:43
Speaker
And that's the power of all this is the synergies of all these going together to try to make your tax liability as low as possible at the end of the year. And then managing your risk tolerance within all of that. So, you know, if you're more conservative,
00:21:57
Speaker
You want this to be more bank money. You don't want your roller coaster to be too up and down. We can dial back your risk. And if you want to stay aggressive, you got really ample liquidity, great cashflow. You want to continue to take risk. We can dial up your risk and have you more equity driven in the market. And so all that's professionally managed. It's actually really cool. And we're super excited about it. That's why we want to do a podcast on this topic in general, because the thing is you
00:22:22
Speaker
age and you've talked about this a lot with our clients focus as you age is the process that you should take less risk. When you think about especially if you have to social security payments pension and you got you know hundreds of thousands to millions of dollars you should actually probably take more risk or you can handle more risk as part of an overall plan.
00:22:43
Speaker
And so these are strategies that we think as you age, you're going to want tax protection because a large part of people, you know, they have a huge 401k balance. They're taking a predominant share of their needed income from a 401k, which is all taxable.
00:23:00
Speaker
A lot of people are just realizing as they start social security or they get set up for it that in large part over 70 percent of your social security payment is taxable for the rest of your life. And so you really don't have a lot of tax protection. Your house is paid off unless you're given a lot of money away to charity or property taxes, state income taxes, that type of thing. There's just not a lot of tax protection, especially if your kids are grown, you're not contributing to college funds.
00:23:26
Speaker
you're not working you're not contributing to ira's there's not a lot you can do to hide from taxes in retirement so this is a great strategy. To stay aggressive or to stay conservative and stay along the market have liquidity but not get crushed in taxes when you do make money so.
00:23:45
Speaker
Yeah, I think too, I just want to clarify, we love retirement accounts for the taxed portion. Like if you're getting absolutely killed with taxes, cause cashflow is so strong, let's use the 401k as a tax deduction, but not necessarily to build wealth. And if you really think about that, that is a complete mind shift. Like I'm using my 401k for taxed, like hiding taxes.
00:24:12
Speaker
and take some of the tax burden off of me, versus I think 99.9% of the country is using it for wealth creation. And they have no idea what's going on in there, what accounts should I put it in. If that sounds like you, I'm talking straight to you, because you need to be working on something that you're actually excited about outside of the 401k. Because we hear it all the time, come to us like, what's retirement gonna be like? Well, it's gonna be like this, this, that, and the other. And they have a very clear picture of retirement's gonna be like,
00:24:42
Speaker
We ask them, well, what's your life look like now? And there's a complete chasm. It's like, hmm, I'm challenging you on that. Like don't wait until this age, start that now to see if you really like it. And so that really has implications all over the spectrum. I would say from college, high school kids, all the way up to 70 year olds, like what is it that you are made to do?
00:25:06
Speaker
And how can you do this quicker? And for the college kid or the high school kid, I'd be like, who's, what do you want to do when you grow up? Well, I want to be a lawyer. Well, who's your mentor in that field? Have you ever job shouted at anybody from that? Like, I don't know. Like I'm just going to classes for it. It's a scary place to be. And you could see how you can lose a lot of money quickly, uh, versus having a mentor be like, Oh my goodness, that's exactly what I want to do. That class that I'm taking is not my favorite, but it's a means to an end. I'm going to go do that.
00:25:32
Speaker
Anyway, so it's just a mindset, but this kind of account really helps you start thinking of that way.
Building Wealth: Accounts and Strategies
00:25:40
Speaker
And then when it's so liquid, if something comes up and you have an opportunity to do something you absolutely love to do, well, let's get it. Let's get the money. Let's go out and do it. Versus I have all of my money in my retirement account and I want to adopt a kid.
00:25:53
Speaker
It's going to be tougher to get. Yeah. So anyway, I think the visual of like a, we'd talk about as a teeter totter, you know, you didn't like it when you're a kid being all the way up on top, uh, or all the way up, you know, down on the bottom. And so if you think about your money on the terms of a teeter totter, you want it to be balanced. A lot of times we meet people in retirement, you know, they have over a million dollars in their 401k, which is great. And they have like less than a hundred, a hundred, 200,000 in the bank. And so you have a really wide gap between.
00:26:24
Speaker
where your money's at. And so I think what you're saying is, instead of trying to get 100% of your income out of your 401k in retirement, what if you got 40% for the 401k and you got 20% from an account like this, and you got 20 or 30% from rental properties, and then you got your social security and or pension.
00:26:45
Speaker
having a better balance of where that money's coming from is potentially better diversification than having it all in a retirement account and really not having a lot of decisions to make on that retirement account. Because once you hit 70 and a half,
00:26:58
Speaker
Actually, it just got pushed back with the secure act now, I think it's 72. But you got to start taking requirement and distributions. And so your control of that account starts to actually diminish the bigger it gets. So that's what we're just trying to be mindful of and help people see a different picture of how to build wealth and the registrations and tax consequences of each of these types of accounts.
00:27:22
Speaker
Totally. And all of this is valid. Like I love that we're advisors that understand each type of philosophy and why it was put in place. Can't tell you how valuable that is versus an advisor that says, no, this is exactly how to do it. This is the only way to do it. This is this like, do you even know any other strategies? Like, and do you understand why those strategies were put in place? Yeah. I think what you're referencing is.
00:27:46
Speaker
If you listen to our podcast on retirement income or read our ebook on retirement income, kind of walk through the four to five main philosophies that people are using for retirement income as it relates to the stock market investing, structuring your investments. So there's really only about four or five and we kind of break down each one of those and then how each of them could apply based on the registration of the accounts and where you're storing your money.
00:28:13
Speaker
which I think is kind of helpful because it's like, you don't want to feel like I have to do only one of these with all my accounts, kind of want to pick and choose, um, maybe leverage two or three of them. And when you look at the actual registration to where your money is stored, again, we're talking about Roth IRA or a self-directed IRA or like an after tax account. Um, it actually probably makes sense to leverage two or three of them based on the registrations, uh, and the balances within each of those accounts. So,
00:28:43
Speaker
Yeah, I want to go. I think we're going all over the place. So hang with us, but diversification, like think about true diversification. Is it the person that's just taking their income out of their 401k and social security, or is it the person that you just referenced that has some out of an after tax account, some out of the 401k, some out of a rental property, some out of like that seems to be true diversification versus like, yeah, I'm diversified in my account in my 401k. Like,
00:29:10
Speaker
No, it's all tied to the stock market. And so true diversification to us really does mean outside of the portfolio of your investment stocks and bonds and mutual funds. So kind of the last point with these tax managed accounts, when you look at the average expenses and tax drag that people are paying on large cap equity funds or small cap equity funds,
00:29:36
Speaker
different types of portfolios that you could find your money, kind of back to that American funds discussion at the beginning. The average mutual fund not geared to be tax managed in the United States, you're going to be paying fees or taxes, excuse me, somewhere between 1% and 2% tax drag on the account. So kind of like you were saying, if you made 16%, you're really not making that in an after-tax account because you could have a tax drag of
00:30:01
Speaker
you know, one to two, uh, almost upwards of 3% in some cases. And so in that it's like, if you could get a similar return, say
Balancing Assets and Opportunities for Wealth
00:30:10
Speaker
12 to 14%, but have almost no tax drag, you might actually have a better overall return when you think about all of your income, not just this one account.
00:30:21
Speaker
And so that's where you got to work with your tax account and your advisor to see if these accounts make sense over time we think that they do and then they have professionally managed depending on your risk tolerance and depending on how you want to structure things we can find a really good fit for your overall plan.
00:30:40
Speaker
Love it okay so i hope this kind of gives you a little bit of a glimpse of the way that we think. And what's important and we think should be a priority in your life you are your best asset you need to put accounts up. In your i'd say overall plan that help you.
00:30:57
Speaker
Balances I think is the word balance and leverage your true asset, which is you so thank you for listening Yeah, we have so much more content We're excited to give you that if you could do us a favor like and subscribe to this podcast It allows us to reach more people.
Engaging with the Podcast Community
00:31:14
Speaker
It would be a huge blessing. Yes, and we do read the comments. They're absolutely awesome Makes our day we put a lot of time and effort into this thing and we hope that it shows and we hope that you're getting a lot of value out of this so
00:31:26
Speaker
Final thoughts, be dog.
00:31:27
Speaker
No, I just think this is something that you have questions on. Please reach out to us. You can schedule a free 15 minute call through our website on commonwealth.com. And yeah, we'd love to talk to you and see how this fits into your overall plan. And I think you're going to be hearing more about this just, you know, obviously with politics and people's tax plans, and we're going to see what November looks like. But yeah, I think this is a interesting thing for a lot of people.
00:31:56
Speaker
Cool. Well, you've been listening to the Uncommon Life Project. Thank you for listening. I'm your host, Philip Ramsey. I'm Brian Dewhurst. Tune in next two weeks. We'll have another one for you. Thanks, everybody. Bye-bye. That's all for this episode of the Uncommon Life Project, brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.