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170R | A Capital Gains Case Study For 2020

You’ll learn more about the implications of capital gains and the mechanics of tax optimization for these gains. With two case studies, you’ll start to realize the power of optimizing your capital gains strategy.

In This Episode:

  • On Monday, we saw the biggest daily drop in the DOW in history. With the extreme volatility in the market, it can be difficult to stick to your investment plans. However, for people in the accumulation phase, this is the perfect opportunity to stick to your plan and continue to invest in the market.
  • Brad quoted Warren Buffet’s famous investment advice, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
  • In volatile times, it is critical to follow the guidelines that you’ve set out in your investor policy statement. You can learn more about building an investor policy statement with Physician on FIRE.
  • In the coming months, we will be taking a closer look at a few different types of drawdown strategies. Three of these include a yield shield strategy, a bucket strategy, and a pay yourself from your retirement accounts like a regular paycheck approach.
  • Tax-deferred accounts are retirement accounts that you contribute to with pre-tax dollars. Instead of paying taxes now, you will pay taxes when you withdraw the funds.
  • Roth investment vehicles are a type of account that you can take advantage of to save for retirement. You will pay taxes on the money you contribute now, but you will not need to pay taxes when you pull out the funds.
  • Taxable accounts are a way to save for your Financial Independence that does not restrict you to certain age limitations or minimum account distributions. You’ll be able to contribute post-tax dollars to these accounts and invest in the securities of your choice.
  • A capital gain is a rise in the value of your security over your purchase price. For example, if you buy a security for $10 and it is currently worth $15, that creates a capital gain of $5. However, that gain will remain unrealized until you sell the security.
  • You create a short term capital gain by selling within a year of purchasing the security. You create a long term capital gain by selling the security more than a year after holding it. The tax code favors investors that are able to realize long term capital gains.


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