Taxes vs Investments - Which is More Important
“Taxes are a matter of fact. Investments are a matter of hope.”
I wish I knew who to credit this to, but I have never found the original source.
Regardless, if you were to ask me what is more important between taxes and investments, I would have to say taxes. 😲
Here’s a few reasons why:
- We know what is going on with taxes. These are in writing and on the books.
- Investments are more unknown. Over the long-term investments have always gone up. No one can say for certainty what investments do over the short-term.
- 😭 Studies show nearly 2/3 of even average investment performance can be lost to taxes over a lifetime.
- You have more control over taxes than your investments.
Why this matters:
- Most investors fixate on the proper asset allocation. Asset allocation is important and pretty easy to do.
- The majority of investors think about taxes once a year when they do their taxes. Then it is too late.
- Asset allocation usually impacts one area – how you are invested.
- 🚨 Taxes cover things like tax-management of taxable accounts, IRA distributions, Roth conversions, Required Minimum Distributions, Medicare premiums, how much you pay Uncle Sam, and on and on and on.
The Wrap-Up:
- Investments are important, but without proper tax planning the best investment performance can be crushed by taxes.
- Most investors and way too many advisors focus on investment returns, which no one controls.
- We know what is happening with taxes now and in the next few years.
- To truly separate yourself from the herd and keep more of what you make, you need to focus on taxes. 🥇 🏆 🥇
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.