Strategy for investing in a high-tax investment

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Rrolack
Posts: 76
Joined: Fri May 22, 2009 12:18 am

Strategy for investing in a high-tax investment

Post by Rrolack »

Hi folks,

I have the opportunity to make an investment in a hedge fund vehicle. The investment itself is a good one, but one issue is that all of the gains (or losses) it generates would be short-term capital gains/losses.

I'm in the highest tax bracket and live in NYC, so my total tax rate is around 50%. This obviously eats into the pre-tax return quite dramatically.


Are there any strategies that are generally recommended to make this a more tax-efficient investment? As an example, one thing I'm doing is being aggressive about realizing losses in my mutual fund holdings, so that these losses can offset gains in the hedge fund (rather than offsetting long-term capital gains I'll realize from selling my mutual fund investments later on)...
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Noobvestor
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Re: Strategy for investing in a high-tax investment

Post by Noobvestor »

Rrolack wrote:Hi folks,

I have the opportunity to make an investment in a hedge fund vehicle. The investment itself is a good one
Hi Rrolack - let me stop you right there for a moment. What makes you think this hedge fund will be a 'good one'? Is it past performance? Some secret sauce they sold you on? Other? Because in general hedge funds are a good way to lose a lot of money ...
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
livesoft
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Re: Strategy for investing in a high-tax investment

Post by livesoft »

Aggressive about realizing losses elsewhere? There is no such thing. One should always realize losses before they go long-term and especially at year-end. That's just normal and not aggressive. You would/should do that even if you didn't invest in this new investment.

Now "creating" losses is another matter, but kinda defeats the purpose of investing. I guess we could say the most tax-efficient investment is the one that loses the most money?!
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Topic Author
Rrolack
Posts: 76
Joined: Fri May 22, 2009 12:18 am

Re: Strategy for investing in a high-tax investment

Post by Rrolack »

Noobvestor, the fund is actually offered by my employer. I'm very familiar with the strategy itself and the performance characteristics/history.

Livesoft, I agree that I shouldn't be looking for opportunities to lose money on purpose :)
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Noobvestor
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Re: Strategy for investing in a high-tax investment

Post by Noobvestor »

Rrolack wrote:Noobvestor, the fund is actually offered by my employer. I'm very familiar with the strategy itself and the performance characteristics/history.

Livesoft, I agree that I shouldn't be looking for opportunities to lose money on purpose :)
Investing with your employer sounds like a great way to double down your risk, and a poor way to diversify. You could lose your job and this sizable investment all at once. Perhaps with some more details about what this is all about some Bogleheads can help you out, but right now I have my doubts.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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