May 2 2007

What difference does taxation have on your portfolio?

If you're new here, you may want to subscribe to my RSS feed so you don't miss anything or Follow me on Twitter

I have been going through some tax-planning seminars and there was one example that caught my attention. So how does taxation effect your returns?

Let’s take a look.

Assumptions:

30% marginal tax bracket

Initial principal is $1

You earn 100% each year.

Now let’s see how that works out with 2 scenarios.

Scenario 1 - no taxation

$1 will compound at 100% and turn into $1,048,576 in 20 years.

How much less do you think it will become when a 30% taxation is applied each year?

Scenario 2 - returns are taxed

$1 will compound at 100% + 30% taxation and grow to a measly $40,642 in 20 years.

Lesson? Get your taxes under control before you start focusing on growing your money.

TAGS:

LEAVE A COMMENT

Subscribe Form

Subscribe to Blog