The net return to the investor is the gross return the market is gracious enough to give minus the costs of participation and tax.
The amount of tax an investor pays will affect the overall return on capital from investments in any given year. This, unavoidable and seemingly obvious fact, is often ignored. It is important to assess the effect of tax when deciding on an investment strategy and when choosing specific investments.
We consider all investment returns after tax. We structure portfolios to defer as much tax liability as possible which together with tax harvesting makes for favourable investment outcomes. Tax consequences affect both asset allocation portfolio management decisions.
The allocation of portfolio targets together with tax harvesting is the most powerful driver of investment success. Thoughtful policy targets, carefully implemented and steadfastly maintained create the foundation for investment success.
Effective rebalancing and tax efficiency enhances portfolio performance over time. Rebalancing represents rational behaviour. Maintaining portfolio targets in the face of market moves dictates sale of strong relative performing stocks and the purchase of poor relative performers.
We regularly rebalance portfolio’s against the target asset allocation to maintain a desired level of risk whilst ensuring that we sell high and buy low contributing to long term success. Tax harvesting is also a feature of this process.
Use of low cost index funds from Nor for Profit Investment Companies minimising taxable events provide a huge assist to overall portfolio performance over time.
As business becomes more international, it is most important to understand the tax implications across all relevant jurisdictions. This is especially important when family members are residents in different countries. Understanding the underlying tax issues and utilising the extensive STEP worldwide network are keys to resolving tax problems.
As different tax systems can treat certain investment types very differently, international families need careful advice to ensure that their investment strategy is as tax efficient across the relevant jurisdictions.