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Yes, if you're in mutual funds the tax basis of the fund and likelihood of
distributions all come into play and make life a lot more complicated. I was
assuming single stocks or ETFs (still some complexities but better than
funds).
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of superfragalist
Sent: Monday, June 27, 2005 11:19 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Re:Tax Strategies
Even with buy and hold you're going to have annual gains which are passed on
through the funds to you. Your previous losses are taken against those
gains that are passed through the funds.
If you are trading through IRAs then you can't take losses anyway.
First you have to have a strategy that makes sense and one you will be
successful with, then you figure out the tax consequences.
--- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser" <andysmith_999@xxxx>
wrote:
> Andrew -- your post has a key point that I'd like to clarify. Let's
> say someone has a loss-carryforward from a "prevous life".
>
> Now if that person starts down the buy-and-hold path, that
> loss-carryforward may not be used for quite a while. However, if they
> go down the trading path and make a success of it, then at least they
> have on the horizon, a point where the loss-carryforwards have been
> eaten up by trading profits, at which time they can reevaluate
> byuy-and-hold versus trading. Make sense?
>
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
> <andrew_tomlinson@xxxx> wrote:
> >
> > This is a great post, and reinforces some conclusions I had been
> coming to
> > for my own activities. Tax management is a key issue in
trader/investor
> > profitability. The two additional thoughts (for a US trader)that
come up
> > are:
> > - consider restricting short term trading activities to tax-deferred
> > accounts, such as IRAs
> > - consider shifting trading activity to the futures markets. Futures
> gains
> > are treated under Section 1256 as 60% long term and 40% short
term. And
> > record keeping is much easier as you don't have to keep track of
> > basis
> > - compare trading and backtesting results on an after-tax basis.
> i.e. if you
> > have a trading strategy you want to compare to buy and hold, then
> consider
> > your results after applying short term capital gains taxes to the
> trading
> > strategy and lower long term capital gains rates to the buy and
> hold. Your
> > short-term return needs to be 30% higher or more (depending on the
exact
> > rates you use) to be at after-tax breakeven.
> >
> > Of course, most traders lose money in the first few years, so you
> can build
> > up a nice loss-carryforward to shelter your gains (if and when you
> start to
> > make them) for a few more years. So you have to have been profitable
> for a
> > while before you care - maybe that's why we don't hear much about
> > tax strategies for traders!
> >
> > Best
> > Andrew
> >
> >
> >
> >
> >
> > -----Original Message-----
> > From: equismetastock@xxxxxxxxxxxxxxx
> [mailto:equismetastock@xxxxxxxxxxxxxxx]
> > On Behalf Of superfragalist
> > Sent: Monday, June 27, 2005 12:55 AM
> > To: equismetastock@xxxxxxxxxxxxxxx
> > Subject: [EquisMetaStock Group] Re: William Bernstein
> >
> >
> > Andy,
> >
> > Here are the results from Bernstein's buy and hold asset allocation
> methods
> > based on my implementation of them.
> >
> > 1998 -7.86
> > 1999 27.73
> > 2000 3.30
> > 2001 2.83
> > 2002 1.76
> > 2003 49.95
> > 2004 23.76
> > YTD 4.35
> >
> > The statement I made was if I had used Bernstein's approach, I would
> have
> > been nearly as well off money wise as I have been trading.
> >
> > Your question implies do I do better than the numbers above from
> trading.
> > Yes, considerably better. However, when you consider that the
> numbers I've
> > given you are nearly all capital gains, the issue becomes taxes and
> > expenses.
> >
> > If you consider Federal and State Tax on my trading profits, I pay
> nearly
> > 50% of my earnings to the government. Then there is the issue of
> > expenses--data, professional fees for accountants and attorneys,
> educational
> > materials, equipment and software.
> >
> > There is no social security tax, nor can I deduct expenses because I
> don't
> > file as a trading business. I can't contribute to a defined benefits
> plan or
> > SEP or 401K. I could set up a Sub S and trade from that but it
triggers
> > automatic detailed audits when it's a trading company, which I don't
> much
> > like based on the others I have had to put up with.
> >
> > When I draw money out of a buy and hold account, I don't pay tax on
> the full
> > amount. I only pay tax on the difference between my cost basis and
> the gain.
> > On the gain I only pay 15%. So I don't need to draw out as much to
> have the
> > same after tax income. When you figure it all out, my taxes would be
> very
> > small on draws from the buy and hold accounts.
> >
> > None of this includes time, hours and hours of time. What's that
> worth? Over
> > the last five years, I've put more hours into my trading than I did
> when I
> > was working full time. My previous job was very demanding, trading
> demands
> > more.
> >
> > When I take all of the factors into consideration, for me, I can't
give
> > trading an overwhelming endorsement even though I actually make
> money from
> > it.
> >
> > Before I started trading full time, I worked the problem backwards.
> In other
> > words I estimated what I would make from buy and hold and then what
> I would
> > have to make from trading to beat that including the taxes,
> expenses, etc. I
> > missed the time estimate.
> >
> > So far my financial models have been within the expected
tolerances, but
> > each year when I evaluate the comparable worth including the
> intangibles,
> > it's a hard question to answer in hindsight between which method
> would have
> > been better.
> >
> > One of the issues for someone who has to make a living from a buy
> and hold
> > asset allocation model is the performance of the model during the
first
> > three years. The first three years generally determine how
> successful the
> > method will be over the long run.
> >
> > For example, if I had started the Bernstein method with a
> combination of a
> > couple of losing years and then a strong year and then a couple of
> > profitable but low return years, the Bernstein method would not
> compare as
> > favorably to trading as it does. Not only is there drawdown from
losing
> > money, there is additional drawdown from living expenses. That extra
> > drawdown makes it harder to recover in the good years. You can
> easily see
> > this with Monte Carlo simulation, which I have run on a number of
asset
> > allocation models.
> >
> > For anyone who is not trying to make a living off of a portfolio,
> then the
> > starting point is not nearly so important. In that case, I almost
always
> > recommend the asset allocation model instead of trading.
> >
> > For those who want to have some fun trading or swinging for home
runs or
> > whatever, I suggest they put 90% of their assets into the model
and only
> > trade with 10%.
> >
> > As I mentioned in the other articles, there have been other
benefits to
> > trading outside of the money. However, in reviewing the last five
years,
> > it's a tough choice--at least for me.
> >
> > Everybody has their reasons for whatever they do. I don't mind
> sharing my
> > reasoning if it helps someone else make an informed decision.
> >
> >
> >
> >
> >
> >
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
> <andysmith_999@xxxx>
> > wrote:
> > > Super. If I recall correctly, you said in a prior post that had
> > > you
> > > used Bernstein's approach, your trading results over the last few
> > > years would be no worse than they are now? Surely that can't be
right.
> >
> >
> >
> >
> >
> >
> > Yahoo! Groups Links
Yahoo! Groups Links
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