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Our Rich Journey – How We Reduce or Avoid Taxes With Tax Efficient Investing | See Our Portfolio (Ep. 5): It’s time for another portfolio update! This video marks our fifth update in this stock portfolio series. It all began in March 2020, when we invested $5,000 into three different index funds. Each month after that, we’ve invested $1,200 into this portfolio and we’ve opened up our portfolio to share how it’s doing. And not only do we share how our portfolio is doing, but we also answer investing questions. This month, we address a question related to taxes. Specifically, in this video, we talk about tax efficient investing and the best types of investments to put in tax advantaged accounts versus taxable accounts. If you haven’t watched this series from the beginning, make sure you go back and watch each monthly update since March. It will give you a lot think about when it comes to investing!!!
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We Invested $5,000 In the Crashing Stock Market | See Our Portfolio (Ep. 1):
$200K Homes In Portugal | See What $200K Buys You in Lisbon, Porto, the Algarve & Central Portugal:
Retiring Early With Dividend Income (Our Income & Growth) | See Our Portfolio (Ep. 3):
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Money Moves to Make In Your 30s to Retire BEFORE Your 40s:
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How We Reduce or Avoid Taxes With Tax Efficient Investing | See Our Portfolio (Ep. 5)
Taxes are an inevitable part of our lives, and as responsible citizens, it is our duty to pay them. However, it is also important to understand and exercise our rights to reduce or avoid taxes legally. This is where the concept of tax-efficient investing comes into play. In this article, we will delve into the world of tax efficient investing and explore how it can help us minimize our tax liabilities while maximizing our investment returns.
Tax-efficient investing is a strategy that aims to reduce the impact of taxes on our investment returns. The goal is to generate higher after-tax returns by making smart investment choices and utilizing various tax planning techniques. By employing these strategies, investors can keep more of their hard-earned money in their pockets rather than giving it away to the taxman.
One of the key ways to achieve tax efficiency is by investing in tax-advantaged accounts such as Individual Retirement Accounts (IRAs) or 401(k) plans. These accounts offer tax advantages such as tax-deferred growth or tax-free withdrawals in retirement. By contributing to these accounts regularly, investors can reduce their taxable income and defer taxes on their investment gains until retirement when their tax bracket may be lower.
Another tactic of tax-efficient investing is asset location. This involves strategically allocating investments across different types of accounts to take advantage of their tax treatment. For example, placing tax-inefficient investments such as high-yield bonds or real estate investment trusts (REITs) in tax-advantaged accounts can shield them from immediate taxes. On the other hand, investing in tax-efficient vehicles like index funds or ETFs in taxable brokerage accounts can reduce taxable income and benefit from potential long-term capital gains tax rates.
Furthermore, tax-loss harvesting is a popular technique used by tax-efficient investors. It involves selling investments that have experienced losses to offset the capital gains and reduce the overall tax liability. By selectively harvesting losses, investors can not only reduce their current tax bill but also create a tax-loss carryforward that can be used to offset gains in future years.
Additionally, managing the timing of capital gains and losses can also contribute to tax efficiency. Investors can strategically sell investments to realize long-term capital gains in years when their tax bracket is lower or even take advantage of the zero percent tax rate for those in the lowest income tax brackets.
Lastly, incorporating charitable giving into one’s investment strategy can provide tax benefits. Donating appreciated securities directly to charities can help investors avoid capital gains taxes while receiving a tax deduction for the fair market value of the donated assets.
In our recent podcast episode, “How We Reduce or Avoid Taxes With Tax Efficient Investing,” we discuss these strategies and more in greater detail. We take you through our own investment portfolio, sharing how we have implemented tax-efficient strategies to minimize our tax burdens and maximize our returns.
It is essential to note that tax efficiency should never be the sole driver of investment decisions. It is crucial to consider factors like investment objectives, risk tolerance, and diversification while designing a tax-efficient investment portfolio. Consulting with a qualified financial advisor or tax professional is advisable to ensure that tax-efficient strategies align with your unique financial situation and goals.
By embracing tax-efficient investing strategies, we can make our money work harder for us, allowing us to keep more of our investment returns and achieve our financial goals. So, take a closer look at your investment portfolio, explore tax-saving opportunities, and make the most of your hard-earned money by becoming a tax-efficient investor.
Disclaimer: The content in this article is for informational purposes only and should not be considered financial or tax advice. Always consult with a qualified professional for personalized advice tailored to your individual circumstances.
Love your channel, so are you saying that you don’t have any REITs or High yielding index funds/ETFs in your taxable brokerage account at all?
I’ve seen many of your videos and have a firm grasp on the different IRAs, but I tend to get lost on how the investments should be allocated in each account, particularly keeping the taxable account diversified given the tax implications?
When you two review your portfolio, I never really know which account you’re looking at. I’m not a total newbie, I’d say beginner-intermediate.
Another excellent video. Thanks!
Our Rich Journey, can you advice on tax advantage accounts in Portugal? What would be a Roth equivalent?
Do you have this portfolio in a taxable account??
What Fidelity bond fund is best for a taxable account? I'm using FXNAX.
Question- so if I want to invest in one index fund and I keep contributing to my Roth IRA. Does that mean I have to keep buying that index fund every time? Or how does that money I keep contributing into my account get investing that index fund?
do you put fzrox in tax advantage or regular brokerage?
so it's better to invest into index funds in a taxable account like robinhood or fidelity? wouldn't the liquidity of the taxable account make it tempting to withdraw from those index funds which would erase those compound interest gains?
Sometimes even a low-yield bond incurs big tax if you own a lot of shares of that bond. In my taxable accounts I only put in tax-exempt bonds. I have $300k in bonds, so even low yields would kill me with taxes.
I have been following you guys for a while and this may sound dumb but can you please explain to me this …. I have a 401k with company match threw vanguard I want to open a Roth ira starting with etfs like voo vti etc…. My question is tho when I open it ima buy one share of each to get started then try and contribute every month but my question is when I contribute am I just adding money to my current etfs or Am I suppose to be buying more shares of the same etfs ???
Y'all are the best.
Great video
I appreciate all your videos, could you guys explain how re-investing your dividends work, price of share at time of your dividend is re-invested. Is it best to get pay out of your dividends and then use that dividend to buy shares on your time?
Hi Amon and Christina, I have found your channel to be so educational to me. This is a great video and I have learned so much however, can you clear something up for me? In your portfolio video you mentioned that you have VYM in a brokerage account and VTSAX in a Roth but in this video you recommend putting investments like VYM in a tax advantage account and VTSAX in a brokerage. I’m confused, can you explain?
What type of portfolio is this? Roth IRA? Taxable account?
You invest on Vanguard and Fidelity? I've watch other of your videos where you state you only invest with Vanguard. Sorry I'm confused. I'm starting to watch your videos, so I probably missed something. I'm learning so I can start investing. Thanks for the videos and teaching.
Would you consider index funds like fzrox, fzilx, fspgx considered to 'tax efficient'. Where would you put these investments if you had a Roth, Traditional or Taxable Individual accounts? What about stocks like Apple and Facebook?
Thanks for this. I learned something new.
where did u buy the fzrox in taxable or roth?
Guys, did you ever make an episode like this for Portugal ? I get the value for Americans in enumerating these type of account, but as a remote worker looking to move in Portugal I was hoping to learn from you if there are similar account there or if I should rather pursue other residences like Andorra or Lichstenstein, thank you, I appreciate your content as it is a good guideline even if the US investing vehicles are not available to myself!
Doable for a US citizen, but I haven't found tax advantage accounts available for foreigners who live abroad and want to invest in U.S market (not millionaire), maybe someone knows an alternative. In the mean time I guess my best option is to put this money directly into reits and index funds.
Appreciate! a quick question, my only income source is from stock/ETF trading, can I put my gains into IRA account? I checked google said I could not.
Awesome channel that provides lots of value. I have a question. Are you saying that you bought 63.213 shares of FZROX at $11.39 per share on July 15, 2020 and then by the time this video was posted on July 26, 2020, you accumulated a total of 627.185 shares, which implies that you bought 563.972 shares in about 2 weeks? What am I missing here? The implication would be that you were buying roughly 40 shares a day for approximately 2 weeks. I'm just learning to do the math and would like to be clear. Thanks in advance!
Is it safe to put FXAIX (Fidelity S&P 500 Index Fund) in a taxable account?
Are these in your brokerage account or tax advantaged account?
How can someone invest
Hello. So do you choose a specific day of each month to purchase additional shares? Do you have a target price or you simply buy at market price?
I am wondering how to start as a non american citizen and if its more difficult. I'm an australian living in korea.
If you were planning to have an account for ETF's and another account for Index Funds… and one account is a regular account and the other one is a ROTH IRA… which account would you use to trade ETF's and which one for Funds? I'm thinking about the effects of realizing capital gains while using index funds versus tax repercussions…
The way you both share this information is wonderful. Easy to understand and I love the visuals! Thank you!