Course 111: Exploit the Magic of Compounding
The Tax Man
In this course
1 Introduction
2 Keeping Costs Down
3 The Tax Man
4 The 0% Loan

Commissions are just the beginning of the story because frequent trading can dramatically increase the taxes you pay. Let's take another example: Assume you invest $10,000 in a group of 10 stocks today that generates a 12% return (before taxes) and 28% short-term and 20% long-term capital-gains tax rates.

If you put $10,000 into these stocks and they rise at an annual rate of 12% for 30 years, and you subsequently sell them all and pay taxes on the gain, your original investment will turn into about $239,000, an 11.17% aftertax return. But by selling your stocks once per year, paying taxes on your realized gains, reinvesting what's left for another year, and repeating this process each year for 30 years, the same $10,000 will turn into just $120,000, an 8.6% aftertax return. That's another $119,000 you've just left on the table from taxes alone, in addition to the money flushed down the drain in increased commissions.

Next: The 0% Loan >>

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