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So if essentially all my gains are taxed at my marginal income tax rate due to frequently getting into and out of certain ETFs, and then with some other unknowns of buying into and out of ETFs as to what exact price I’ll get when I sell (likely not correspond to the closing price on the last trading day of the month) and what price I’ll get when I buy (surely it will differ from the buy in prices given for the next months holdings)—neither of which would be much concern to me if I was getting into or out of ETFs on an annual basis but monthly, does concern me–I’m wondering if anyone has discovered the portfolio returns are drastically different from what they are experiencing after actual execution and paying capital gains taxes? Has anyone found them to be drastically different enough (read: lower) to not warrant all the investing activity following these portfolios require? Like a buy and hold strategy with some decent non correlated assets might perform as well looking at after tax returns? Just wondering about your thoughts on this sort of thing.
I used to worry about taxes, but have found this not to be a problem. Last year I earned $45k from investments and sweated the tax bill. After uploading all the data into my tax software, I still received a refund from the IRS.
Each person tax situation will be unique, but, with making profits comes paying taxes, which is just part of life for us USA investors. For me, it hasn’t been a problem.
My strategy is using a base amount each month. If the strategy makes money, I shave the profits back to base amount. If the strategy goes red, I simply rebalance and move on until we profit again. Sometimes there are many months I go without a profit. But, when the months comes with big gains, it helps make up for the zero months.
Certain strategies and portfolios create a higher percentage of short term gains – for example NAS 100, DOW 30, and top 3 – because they buy and sell more often and switch between strategies and funds frequently. But in theory if you created a static portfolio of strategies like UIS, MYRS, BRS, GLD, you would more or less be re balancing the same group of holdings every month allowing for a bit higher percentage long term gains. Although in certain more volatile years like 2018, this static portfolio mix still creates a lot of short term gains (and losses).
Taxes differ for everyone as we have subscribers from different countries. 401k/IRAs should be ok with rebalancing monthly. U.S. taxable accounts will be subject to short term capital gain taxes, so as Deshan mentioned you have to consider your own situation. Same with dividends, especially for non-US persons who may end up with a 30% tax on U.S. based dividends, thus affecting bond-heavy strategies such as the BRS. We cannot advise on an individual basis, as we are not registered to do so but we can help provide information on general cases.
Deshan, I get the impression you’ve been with LogicalInvest for a while. Have you been following one of the model strategies/portfolios or did you create a custom portfolio? Would you mind sharing your portfolio allocations? I just recently joined LogicalInvest and for now I have 48% Bond Rotation Strategy, 42% Nasdaq and 10% Maximum Yield. Thanks, Larry
IMHO, the excess gains over a buy and hold strategy (assuming they are in the neighborhood of the backtests) will likely far outweigh the tax impact if you are in the US
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