Broker Check

How do you like your cake?

June 28, 2021
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In today's episode, I would like to talk to you about an important investment aspect that is often overlooked by novice investors and even some financial advisors. And I would use an analogy to assess that in terms of how do you like your cake? For instance, here is a cake.

And if you think about that this cake represents an investment that you would like to make for the long term, or even medium term, assuming it is a non-retirement account investment, you might like to use some of those funds before retirement. And usually in my experience of 38 years in the business, most people don't need all the money at one time. So they may need parts of it at different times.

The question is, how is that taxed?

Fun example, if this cake represented the actual investment, and let us say this icing represented the gains off the investment, perhaps you would like to add some berries to it.

The question is, how do you like to eat your cake?

Most people may take a slice like this, which would represent some of the gains and some of the principle invested, and therefore they will end up paying taxes on the gains. The question is, would you like to have it in a way where you will get to eat proportionately, meaning you get some gains and some of the original investment back? That means they're paying taxes. Or would you prefer the way I do, which is that you get essentially just your investment piece, just the part that you put in, but you are only needing part of it, and you don't pay tax on it.

So for people who are investing for the long term, think about the tax impact of the investment, along with the actual sectors and the types of investment they are making. So talk to your tax advisor, perhaps your financial advisor. If you'd like to have further input from us, reach out to us. But in technical terms, some of the things are called last in, first out, first in, first out, tax treatment. And I think you will be able to make better decisions since tax is a heavy cost for most people.

Thank you for listening. Hope you enjoyed today's episode.