Читать книгу The Taxable Investor's Manifesto - Stuart E. Lucas - Страница 10

This is not a book about tax; it's about fomenting a quiet revolution. The Taxable Investor's Manifesto is your guide to maximizing profit from your financial assets over a lifetime and beyond. It's also a book about how to compete side by side against the majority of investors who don't pay tax. And it's about the skilled advisors who will help you manage your hard-earned wealth most effectively.

Taxable investors need to think differently. It's my experience; it's my mantra. It's the truth. And yet, try to find comprehensive guidance about personal finance that makes a serious stab at optimizing the combined effects of the money we earn, our investments, and the taxes we pay. It's darn near impossible, and I know where to look. I have spent 35 years in the investment and wealth management industries and received thorough academic and professional training.

The bottom line is that almost everyone who studies finance academically or advises us about our personal finances treats taxes as an afterthought, at best. It's very difficult for academics to access the diffuse data they would need to study our after-tax investment returns, so they don't. As a result, financial advisors haven't received sufficient training to optimize the returns to their taxable clients. In addition, the metrics that academia and the financial industry have developed to assess performance are designed without consideration of tax impact. When proper metrics don't exist, firms don't have the tools to monitor and incentivize their advisors to reduce our tax bill, and we have a hard time understanding what we are missing. These omissions are all rational given the current circumstances. But they come at a large cost. If academics, advisors, training program designers, and taxable clients all pull together, we can change the wealth management industry for the better.

Why should we care? For starters, the right advice is worth a great deal of money; to the tune of $5 million on an initial $1 million investment. That's good for clients and it's good for the fee base on which advisors earn their living. Let me explain. Unbeknown to me, a sophisticated investor who read a draft of this manifesto modeled the likely after-tax profit over 30 years on a $1 million initial investment under two scenarios. First, he modeled his existing portfolio of cash, fixed income, hedge funds, and actively managed equities. Roughly 60% of the portfolio was in equities. Second, he modeled a portfolio using the manifesto's strategy. With the same assumptions for market returns and for tax rates, using his current strategy the portfolio grew to about $4 million over 30 years; using the manifesto's strategy, $9 million, after tax. I was shocked by the difference. I knew it would be big, but until then I hadn't done the math. So I hired an analyst to build his own model. The answer was similar. A $5 million difference; that's why investors should care and that's why their advisors should care. Their interests are aligned to maximize after-tax returns. By the way, whether you start with $100,000 or $10 million, or even a billion dollars, the benefits are proportional. Is that potential impact worth a few hours of your time? Make your own assumptions. Do your own math. You will see the difference.

What are the underlying sources of that huge difference, and why is the difference so much larger than if a tax-exempt investor employed the same model? Shifting to a more equity-heavy portfolio benefits both types of investor, because over the long run equities have outperformed bonds, cash, and most hedge funds. But for the taxable investor the impact is much more profound. Because of the nature of our tax system, most of the profits on fixed income and hedge funds are taxed each year, and they are taxed at higher rates. Managing equities in a tax-efficient way enables investors to defer the payment of taxes for years and years, sometimes decades. A properly structured investment portfolio reduces tax drag and dramatically increases the power of compounding. The combination of equities, time, tax efficiency, and compounding can be worth millions.

Let me be clear. I firmly believe that it is the civic duty of every successful American to pay taxes; it's a responsibility and a privilege. Cognizant of the many benefits of living, working, and raising a family here, I am happy to pay my share. This manifesto simply advises that taxable investors should develop investment strategies with the tax and estate planning implications rigorously embedded in their design and management process. Doing so is common sense, if not commonly employed. Plus, it reinforces a healthy long-term perspective, a business-owning mindset, and, with a vibrant economy, a larger tax base.

For those of us who are trying to save for retirement and accumulate additional wealth through our careers, through employment income or by starting and growing businesses, the difference in asset accumulation, financial security, and lifestyle between average wealth management and good wealth management is huge. The manifesto's strategy becomes even more compelling when an investor is managing wealth multigenerationally. It is also a guide for navigating over much longer time frames and through a maze of estate and gift tax laws.

The quest to understand and manage taxable wealth is personal for me. My great-grandfather started the Carnation Company in 1899. After 86 years the company was sold and we shifted from being a business-owning family to a “financial family.” I've been lucky: lucky to be born into wealth, lucky to get a great education, lucky to get superb training as a professional investor, lucky to teach. All these experiences, all the learning, are crystalized in this manifesto. My goal in writing it and sharing it is to change the world in one small way: together, with common knowledge and resonant voices we can find a better way to manage taxable financial assets, secure financial futures, and provide higher-quality advice.

My previous book, Wealth: Grow It and Protect It, was published in 2006. Its goal is to help wealth owners to manage their wealth strategically and comprehensively across business, financial, and cultural dimensions. It all starts from establishing a purpose for their wealth, based on their core values. More than twelve years and a second edition later, the book is still in print. People are still buying it, reading it, implementing it, thanking me for writing it, and coming to me for further advice. With some frequency, readers show me their copy with 30 separate pages or more dog-eared and highlighted. It's incredibly gratifying to be able to help people in this way. Hopefully, The Taxable Investor's Manifesto will have similar impact and similar longevity.

In Wealth, I offer eight principles of wealth management. The very first one is: Take Charge. Over the last 35 years as the wealth strategist on behalf of my clients – including my family – and myself, I've learned that no one is in better position to optimize your wealth than you.

In writing The Taxable Investor's Manifesto, I've drawn from a lot of sources: from the wisdom of others, from experience gained from making mistakes with my own money, and from careful analysis across investing, tax, and estate planning disciplines to figure out how to do it better. What I've learned applies to every taxable investor, regardless of how much wealth he or she has been fortunate to accumulate. After reading and studying you will understand why taxable investors and their advisors need to think and act differently, and you will learn how to do so. Integrating the combined effects of investing, tax management, and estate planning is good financial management and good business. Good financial management leads to effective wealth management; doing it right will help you grow your assets faster and with less effort.

Managing taxable wealth well can be powerfully simple: lower friction costs, raise return potential, and extend your time horizon (in the context of this book, friction costs are the combined drag of fees and taxes). Armed with a few key tools for success – clear objectives, aligned interests with your advisors, a decent system of accountability, and the discipline to persist with your game plan – your money will work for you, not the other way around. Then you can focus most of your attention on what really interests you and what you're really good at. A straightforward strategy is the right answer for most people who have full lives, are leading rewarding careers, and whose careers, families, and other callings are deserving of full attention. This integrated approach to taxable investing is a step-change in thinking that can help you build a more secure future and a more meaningful livelihood in an uncertain world. Nevertheless, because inertia is powerful and people don't change easily, unless you push for change and remain vigilant, change won't happen.

You can also make wealth management really complex. Complexity can add additional value, especially when managing on a multigenerational basis. But the hunt for superior investment returns – the place where most investors and most financial advisors focus their attention – is an extraordinarily competitive zero-sum game. You are competing against, or trying to align with, hundreds of thousands of well-trained professionals, most of whom extract high fees for uncertain value. Those who extract high fees have the resources and incentives to craft highly persuasive marketing efforts.¹ Is it their marketing or their skill that makes you think that by hiring them you will outperform? Can you tell the difference, especially after tax?

Adding to the challenge, good estate planning can create more value, more predictably, than investing. Good planning requires experienced, interdisciplinary talent and finely crafted strategy. Good estate planning also often leads to splitting assets into many small, legally distinct components and then needing to reassemble them to make the whole worth more than the sum of the parts. One friend calls it trying to put Humpty Dumpty back together again. Governance and administration become really complicated without good systems to manage all the disparate bits, individually and collectively. To pursue this complex path, it really helps to have large-scale, uncommon insight, shrewd hiring practices, and strong discipline. You will need help; the right help is essential.

In this book, I explore both the straightforward and the more complex path. Fortunately, any family investment office, business owner, successful career builder, or young professional, regardless of the size of their wealth, can achieve success using either path. They simply need to match skill with strategy, build the right support structure, and follow the guideposts in this manifesto. Either path creates multiple ways to add value and does so with high odds of success; neither one embraces the traditional “holy grail” of “beating the market,” upon which most wealth advisors market their wares.

For those readers who are interested, the manifesto cites academic and other well-researched literature to supply you with supporting data for key concepts. There is good research about taxable investing out there, but it is diffuse and hard to find. This manifesto aims to provide a single, comprehensive, accessible guide that taxable investors and their advisors can use to sharpen their own thinking, align interests, and improve results over decades, even generations, by millions of dollars.

The Taxable Investor's Manifesto is organized in a straightforward manner. Chapters 1 to 7 describe seven value drivers that pertain to everyone and that are straightforward to execute. They should be approached as a coordinated strategy, not something from which to cherry-pick one or two ideas. Each component adds value. Collectively, they are at their most powerful and profitable; if one component fails, you still have multiple ways to win. One can sum up this advice as a Hippocratic Oath for taxable investors: First, do no harm.

Chapters 8 and 9 describe opportunities for those with greater scale and the inclination for complexity to add incremental investment value net of taxes. In addition to considerable analytical skill, this requires excellent judgment about people and opportunity – judgment born of experience and independent thinking. Possibly the most difficult challenge here is allocating and reallocating capital effectively. As a taxable investor, every time you sell a successful investment you must share your gains with the government. Every time you pay tax, you are left with a smaller base of capital on which to compound returns going forward. If you're an advisor, every time your client pays investment-related taxes, those are assets on which you no longer earn fees. This complexity is not shared by tax-exempt investors or their advisors. It requires different perspective and special skill.

Chapters 10, 11, and 12 integrate the business, financial, and cultural elements of managing a complex, potentially multigenerational, family enterprise. At their core, family enterprises require values and vision that support a strong economic engine and a flourishing family. They also must navigate complex estate taxes and the evolution of control and ownership from one generation to the next. Building and managing all this in the face of change, uncertainty, and timeframes that can approach 50 years or more is no small challenge, but it can be done, and the results are powerful.

Chapter 13 is a reminder to everyone that investing involves risk. I explore the key risks to investing in this way, at least the ones I can foresee. It's important to process the risks to be alert to them and to not be distracted by the inevitable ups and downs of market movements that are unavoidable parts of the landscape.

Many wealth owners reading this manifesto are mulling over whether to manage their financial assets themselves or to hire an advisor to help them. Having read it, I believe that most will be convinced that choosing a skilled advisor is instrumental to long-term success. You will also have increasing conviction to identify the right advisor, hold them accountable, and compensate them appropriately. The right talent comes at a price but pays for itself many times over. In Chapter 14, I discuss how to choose the advisor you need to help you accomplish your objectives. The answer varies depending on your scale, the complexity of your circumstances, and your time horizon. The challenge is to find a person or team who offers what you need, has the mindset and skills to deliver on their promise, and whose interests are aligned with yours.

A word about financial advisors: many find themselves in a bind. Why? They know how difficult it is to beat the market, but they also know clients will pay them for advice that feels complicated even if it's unlikely to work. Even when advisors know that clients will get better results with a more straightforward solution, they fear that clients won't pay for what sounds simple and straightforward. The thinking goes that indexing is cheap and doesn't add value, so why pay an advisor to recommend it?

This manifesto illuminates a path out of this bind, to the benefit of both wealth owners and their advisors. There is so much value creation that goes into comprehensive, strategic, after-tax wealth management that has largely gone unrecognized, undelivered, unmeasured, and unpaid for. Looking forward, we can change this. Taxable investors deserve to get good advice and advisors deserve to get paid fairly for delivering it.