Focusing on after-tax returns

Investors who focus mainly on pre-tax returns may gain a misleading impression of their real investment performance.

 

And, in turn, they may not give enough attention to trying to keep their tax costs - along with their other investment costs - to a minimum. 

Investors have a powerful incentive to efficiently manage tax on their super and non-super portfolios given that it can potentially take a significant cut out of their returns.

Super fund researcher SuperRatings publishes a useful table each month comparing the returns of the median large super funds with balanced portfolios in the accumulation and pension phases.

In short, the table illustrates the impact of taxes even within the concessionally-taxed super environment.

For instance, SuperRatings reports (PDF) that the median balanced super fund in the accumulation phase returned an annualised 13.1 per cent over the three years to July yet 14.1 per cent in the pension phase.

The difference in the performance is, of course, due to their different tax treatment. While the earnings of super funds in the accumulation phase are concessionally taxed, super fund assets backing superannuation pensions are tax-exempt. (These super returns are published on an after-tax, after-fee basis.)

Clearly, the tax gap would be markedly larger if top marginal taxpayers were comparing the after-tax performance of identical investments held inside super and in their own names.

Significantly, Vanguard has long published after-tax returns that can be calculated for investors ranging from top personal taxpayers to tax-exempt entities (including pension-paying super funds). The size of the tax gap may surprise you, depending upon the asset class and tax comparisons selected.

One of the key ways that professional advisers can assist their clients is to advise on the efficient tax management of investment portfolios. This advice may include such fundamental issues as making the most of the concessionally-taxed super system - including in regard to taking a transition-to-retirement pension when eligible.

 

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
17 September 2015

 

Any advice contained in this website is of a general nature only and does not take into account your circumstances or needs. You must decide if this information is suitable to your personal situation or seek advice.

Rolanda has been my financial adviser for 20 years. I have always found her to be highly intelligent, knowledgeable and professional in her career. Rolanda is accessible at all times and patiently explains terms that I do not fully understand. I can highly recommend Rolanda and it is a pleasure to do so. I do this with the utmost confidence. Marcia Montgomery (Retiree – home duties and ex-clerk with Water Board)
I retired Oct 2012, and seeking Financial Advice for my retirement funds, I decided to have Rolanda look after my financial affairs, and so happy I did. Since my retirement I am extremely comfortable with Rolanda’s advice, experience and strategies and the returns on my investments. Rolanda is my "Breath of Fresh Air" at this stage of my life and she makes herself available 24/7 should you need to talk with her. Steve Hoad (Ground Engineer, Qantas)
In 1997 I left Energy Australia and decided to join Rolanda Adams Financial Services for the financial support and advice that I would need into the future. That decision has proved a very good one and I am still with Rolanda who has given me advice and friendship over those many years. The advice given has ensured that my investments have been protected and the major losses, of some, during the GFC was not felt by me unduly. Rolanda and her team are very easy to contact at any time and one is always received in a most professional manner. I would be most happy to recommend Rolanda Adams Financial Services to all who need financial services. Graham Fleeton (Manager, Property Insurance Group Energy Australia (Ausgrid))
Rolanda has been my Adviser for the past 18 years. Through her wide industry experience and professional expertise she has ensured the sound development and ongoing management of my investments. Her advice has invariably been sound, timely and entirely tuned to meet my personal needs in retirement. She has a friendly, engaging manner and is always readily available to address any of my concerns. I have no hesitation in recommending her. Neil O'Keeffe (Chief Inspector (retired), Australian Customs Service)

© 2021 Rolanda Adams Financial Services Pty Ltd. All rights reserved. Site by PlannerWeb.