Tax deferral means postponing the payment of tax on income, interest, dividends, and capital gains until the investor takes possession of them. The simplest form of tax deferral is by putting money in your 401k or IRA. You put a portion of your income away before taxes so that you can use that income later in retirement. That’s the basic form of tax deferral. But did you know that there are advanced forms of tax deferral?
There has been a lot of research that explains why index funds outperform actively managed mutual fund. I thought I’d share a distilled version:
An index fund has low turnover because it knows what stocks it will invest in; whatever stocks are in that index. Furthermore, because it knows the stocks it is going to invest in, it doesn’t have to pay a manager big bucks to beat the stock market. That means low fund expense ratios.
Actively Managed FundsOn the flip side, an actively managed fund has to try to beat the stock market by constantly buying and … Read More
Investing fees are not always easy to spot. Wall Street has done a good job burying these fees in the small print of hundreds of pages of prospectus. If they fully disclosed their compensation, investors might balk. This post will explain some of the hidden fees that investors don’t always see.
There are many types of hidden fees, many of which I haven’t even found yet. But some of the typical hidden fees include transaction fees (commissions), internal expense ratios, trading costs, and believe it or not, taxes.
Transaction FeesTransaction fees are different depending on where they are placed. … Read More
A few years ago I started tracking my personal expenses closely. I did this because I was starting my business, and wanted to make sure that I had the cash flow available to make it work. For most people, budgeting can be done in one of two ways:
- You save first, and spend until your money is gone and your next paycheck arrives, or
- You plan how much you can spend based on your income and expenses and put the savings aside at the end of the month.
For people with large incomes, the save first option works well. For …Read More