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Growth vs. Cashflow in early career?

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  • Growth vs. Cashflow in early career?

    Should tax consequences(in taxable accounts) ever effect your goal of continuously maximizing cash flow at the expense of growth in early career years? My marginal is so high that some times I feel these low appreciation-high dividend deals, whatever asset it may be, are more of an investment for the Fed than my family?

  • #2
    Neither. Small cap value

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    • #3
      Don't let the tax tail wag the dog. You'd rather pay taxes on something than pay no taxes on nothing. Having said that, you can be intentional with where you have certain investments based on the tax treatment of the investments. Here is a 5 step process that can hopefully help as you're thinking through this:

      Step 1 - figure out your overall allocation you want (stocks v. bonds)

      Step 2 - figure out what exposure you want between investments within stocks (US v. Intl v. EM v. Real Estate, etc.) and bonds (muni bonds, corp bonds, etc.)

      Step 3 - figure out if you want any tilts (small v large - value v growth)

      Step 4 - figure out what funds you want to get you the allocation you came up between the first 3 steps (there are plenty of portfolios that people can share, and you can always keep things simple with a total stock market fund for US and Intl/EM)

      Step 5 - figure out the best way, from a tax perspective, to hold your various investment funds based on your mix of investment accounts (Roth v. Traditional v. Taxable). I like to put the highest expected growth funds in your Roth IRA since that money is never taxed again (emerging markets, small value). Then, focus on the funds with higher dividends/interest - like value stocks, real estate funds, and taxable bond funds, that kick off more taxable income each year, in your tax-deferred retirement accounts. After that, fill in the remainder of your allocation in your taxable account.

      Paying taxes sucks but at some point, there is only so much you can do, and you still want to focus on investing based on your target investment allocation.
      Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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      • #4
        Real estate can offer some very attractive tax advantages in terms of paper losses, but there are many pros and cons to go along with the tax advantages, and the tax benefits can vary depending on other aspects of your finances.

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        • #5
          TravisRADMD I can absolutely understand the frustration, and Uncle Sam has a few good reasons to throw some more tax at us all soon: TCJA sunsetting in 2026 + Trustees projecting Social Security will run short in 2035. Seeing how taxes are the 800 pound gorilla in the room that we 1) know will be going up in the very near future & 2)Can actually control more than most other variables with proper planning; I always appreciate someone that has a healthy distaste for them just as I do. That all being said, there is a centered balance between not charitably donating to the IRS via ignoring tax requirements and not letting taxes create paralysis by analysis. There is a lot that you do control (at least with the brokerage investments) and as previously mentioned by Andrew, some of that is as simple as investment selection (what to buy) & investment placement (where to buy it in).

          The dividend is double-edged because it stifles the appreciation but keeps the shares less impacted by sell-offs in many cases. I'd do the math, evaluate what tax cost there is (and might be later on) while also realizing that as long as you can limit to qualified dividends you would use the more favorable cap gains rather than income tax brackets, assuming there isn't ability now to relocate those to tax-sheltered retirement. If the cost is relative enough from a tax/pain perspective you may want to consider having a robo with tax-loss harvesting in order to not miss opportunities any time (like earlier this year) for write-offs and carry-forward losses.

          For what it's worth, being mindful will serve you well against the compounding tax costs over your lifetime. This is why I even analyze down to account withdrawal order in retirement balanced with SSI optimization and any conversions/charitable DAF,QCDs amongst others because of the lifetime cost opportunity.

          Pay your fair share to the tax man but don't leave him a tip...
          Founder, Coastal Wealth Planners- Fiduciary Tax-Sensitive Retirement Planning & Wealth Management www.coastal-wp.com email: [email protected]

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          • #6
            Originally posted by TravisRADMD View Post
            Should tax consequences(in taxable accounts) ever effect your goal of continuously maximizing cash flow at the expense of growth in early career years? My marginal is so high that some times I feel these low appreciation-high dividend deals, whatever asset it may be, are more of an investment for the Fed than my family?
            May I suggest financial planning?
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              The only thing that matters is risk-adjusted growth after taxes and inflation. You don't need dividend stocks when you can declare your own dividend at any time by selling a few shares.

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