Keeping It Real: Focusing on Taxes and Inflation | ETF Trends

.By Solomon G. Teller, CFA, Chief Investment Strategist, Green Harvest Asset Management

“Acknowledging what you don’t know is the dawning of wisdom” – Charlie Munger

Taxes and inflation are two critical watchwords for investors – see chart below highlighting the cost of both.

In the financial world, the return on an investment after inflation is referred to as a real return. Last week, investors witnessed a number of events perhaps best described as surreal. Over the weekend there was Bitcoin 2021, the in-person crypto conference that’s already generated much discussion for fans and anti-fans alike. The meme stock phenomenon, where securities’ price movements are seemingly divorced from fundamentals, continued to crescendo last week as well, as the near bankrupt movie chain AMC more than doubled in price, only to fall by half and nearly double again.

For experienced investors, perhaps they’d be better served focusing on what’s “real.” Some possible examples are: actual sales, profits, and cash flows. And in terms of investment returns, what is most real arguably is what investors ultimately keep, namely their returns after both inflation and their largest investment cost, taxes.


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