The Camp Wealth Newsletter

Welcome to Edition #27 of the Camp Wealth newsletter!

Every other Thursday, I’ll simplify 1 personal finance tip, framework, or skill you need for financial independence.

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First off: thank you to everyone who invested in the All Street Academy course!

We had a successful 24-hour launch with 126 course purchases.

I want this to be the best course you can buy to create a roadmap to financial freedom, so we are working on updates based on feedback, so Version 2.0 can be even better.

You can jump on the waitlist when it launches again at the bottom of this email.

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Today we are tackling tax-efficient investing.

We all know a fast track to unhappiness is trying to control things we have zero control over.

And we all love to ignore this and continue to try to control things we have zero control over (I am a pro at this).

If you're a business owner in your first few years, you probably understand this stress.

We don't have direct control over revenue.

We have to focus on the inputs: more leads, higher conversions, pricing, etc.

It's the same with money.

We can't control investment performance.

We have to focus on the inputs: savings rate, low-cost investments, taxes.

Yes, taxes we have some control over.

And ignoring taxes is one of the most common investing mistakes I see.

So, today we're diving into Part 1 of tax-efficient investing.

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I want to thank our sponsor CFD Investments/Creative Financial Designs.

In 2020 I left a large firm and joined Creative Financial Designs to start my advisory career.

While everyone around me was forced to forego social media marketing and lagged in adopting new technology, CFD supported and encouraged my efforts to be on the cutting edge of changes in our industry.

It’s their commitment to growing with me and creating the best experience for my clients that makes it easy for me to recommend them to fellow advisors.

If you want to learn more about them, feel free to reach out to me (just hit reply).

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Your Guide to Tax-Efficient Investing Part 1

First, you need to understand how your investments are taxed.

We have:

1) Ordinary income tax

Your salary, tips, and commission are all taxed this way.

The interest from savings accounts and bonds are also taxed as ordinary income.

The 2023 Federal Ordinary Income Tax Table:

We also have:

2) Capital gains tax

We deal with capital gains tax with your investments.

Your qualified dividends and gains from selling investments are taxed this way.

Capital gains are taxed at a better rate than ordinary income tax (see table below) but only if it’s a long-term capital gain.

If you sell an asset you held for 1 year or less, it will be taxed as a short-term capital gain.

Short-term capital gains are taxed at the same rate as ordinary income tax.

If you hold the asset for more than 1 year, it will be taxed as a long-term capital gain.

Long-term capital gains are taxed like the above table.

This is why long-term capital gains are better than short-term capital gains.

By holding your investment for more than 1 year, you could potentially save thousands or tens of thousands in taxes.

Let’s look at a few common investments:

• Active funds
• Passive funds
• Stock funds
• Bond funds
• REITs
• Municipal bonds

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Active vs. Passive

An active fund trades more often than a passive fund.

The fund manager is buying and selling securities in an attempt to beat the market.

Because they are constantly buying and selling, they are potentially generating short-term capital gains.

A passive fund, on the other hand, trades less often, because it is mirroring an index. Not trying to beat it.

As a result, a passive fund is more likely to have long-term capital gains.

Active funds = tax-inefficient

Passive funds = tax-efficient

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Stocks vs. Bonds

Some stocks don’t pay any dividends and as a result, hopefully, are appreciating.

If you don’t sell, there is no tax impact.

But if they do pay dividends, they likely pay qualified dividends.

Qualified dividends are taxed at the preferential capital gains rate.

Bonds, on the other hand, pay interest.

Interest is taxed as ordinary income.

So:

Stocks (& qualified dividends) = tax-efficient

Bonds = tax-inefficient

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REITs

Real Estate Investment Trusts (or REITs) pay non-qualified dividends.

Non-qualified dividends are taxed as ordinary income.

REITs = Tax-inefficient

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Municipal Bonds

The interest from municipal bonds is exempt from federal income tax.

It can also be exempt from state tax (if purchased in your home state).

Munis = tax-efficient

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TL;DR

Capital gains are taxed at a better rate than ordinary income but make sure it is a long-term capital gain, not short-term.

Active funds = tax-inefficient

Passive funds = tax-efficient

Stocks = tax efficient (if they pay qualified dividends or no dividends)

Bonds = tax-inefficient

REITs = tax-inefficient

Municipal bonds = tax-efficient

Now that we understand the types of investments that are tax-efficient vs. tax-inefficient where do we place these investments?

That’s coming in the next newsletter..

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That’s all for now! Feel free to reply to this email and let me know what you thought of today's newsletter.

I respond to every email :)

See you in 2 weeks!

Rachael

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If you're looking for a personalized roadmap to financial freedom, I'm here to help.

I offer customized financial planning for high-earners and Solopreneurs.

Find out more here: www.RachaelCampWealth.com ​

If you missed the initial launch for All Street Academy, you can join the waitlist for our second launch here: https://www.allstreetacademy.com/​

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Advisory Services are offered through Creative Financial Designs, Inc., a Registered Investment Adviser, and Securities are offered through cfd Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453-9600. This email message may contain confidential information, and is intended only for the use of the persons to whom it was sent. If this message was received in error, please destroy the message and let us know about the error in transmission. The CFD companies cannot accept trade instructions sent through this email system.