Tom has Different Strategies for Different Investment Accounts
Transcript:
Katie Nealis: We have another question in our question bank? Should I have a different investment strategy for my retirement accounts versus my non retirement accounts?
Tom Vaughan: Okay. Yes? And the answer is yes, actually, because in your retirement accounts, you can make changes without any tax ramifications. And so you can do all kinds of different things. In fact, that scenario that I just gave with that gentleman that was trading, you know, hundreds of times a month, he would have had no issue at all tax wise, if that would have been in a retirement account, like a 401k, or IRA or a Roth or any of those things, because there’s no accounting, you wouldn’t have had to put those, you know, transactions on his tax return, which would have really helped. So you can be more active, if you want it to be inside of the IRAs, you don’t have to consider tax.
Now, on the other hand, a taxable account. So if I, if I have something that, you know, put 100,000 is worth 150,000. And I decided I wanted to sell it, I’m gonna have a $50,000 gain. So if I sell that in less than a year after buying it, that becomes ordinary income, which can I really get to be in that 20 to 30% range in terms of the tax, if I sell it, after a year, it becomes a long term capital gain. And a lot of my clients end up in about the 15% federal bracket on the long term capital gain. So that’s one thing that would be different, you’d want to find holdings that you thought you could hold on to for a year.
So generally speaking, we do a lot more broad market indexes in the taxable accounts, and things that we think have a you know, good long term projection for growth that we’re not going to have to get out of in order to preserve our games. And so that’s the difference, less volatility in terms of the assets that you want to put in there. And then less rotation, so less transactions inside those taxable accounts. Because again, you pay taxes on that 50,000 you know, even at 15%, that money’s gone, and now you’re going to have to kind of take the rest and put it in this other investment. The other investment has to do that much better, because some money just disappeared because you made that transaction. So it changes the calculus, you can actually get out, you know, a calculator and figure out what the gain is and whether it makes sense or not. As far as that goes, but you know, you don’t want to hold on to everything until it loses money, but it is you have to think about it and be careful with you know your calculation on the taxable side.