Why is tax optimization so important for your investments?
Paying capital gains tax, to put it mildly, is not something which we do with enthusiasm.
Some of you may be thinking: “Its fine, my country only has a 19% capital gains tax, it’s not a lot, I can pay it”. While at first glance it may seem like not a lot, there are many factors to consider.
One of the most powerful components of investing is compound rate.
Earning $100,000 on our investment decision means we have 100 000 $ more for our future investments. If we pay 19% in capital gains tax we have only 81 0000 $- that’s 19 000 $ less than our original value. Prospectively, in 10 year the deficit would be is 40%. There is a huge difference in having 1 million compared to $1.4 million. As a result of taxation, the difference in profit in 20 years is almost 100%. Such is the magic of compound rate.
The figure below demonstrates the effect tax has on investment return.
As you can see, capital gains tax has a huge influence on prospective profits. There are dozens of countries all over the world that impose no taxes on capital gains in one way or another.