tee
yourself from taxes
Did you know?
A person in the highest federal,
stale and local tax brackets in
New ~0rk City loses almost
om,-half of his or her invest-
ment yield to taxes."
It's no secret that taxes call eat
up a considerable amount of
the interest you earn on your
investments. So how can you
keep more of tile interest your
investments earn? 'lhx-free
investments may be a good way
to lighten your tax burden
while t'urther diversit~'ing
your porttolio.
Tax-free mutual funds
If you want to diversify your
bond portfolio but don't want
to buy a legion of individual
bonds~ you can purchase shares
in a bond mutual fired. These
tunds normally invest in 30 to
100 municipal bonds, giving
yon instant diversification. Also,
in most cases, your initial
investment can be smaller
than $5,000. Ill addition,
receive a fixed interest rate.
Purehasing shares of a unit
investment trust would be an
option tor you. With a unit
trust, you get a fixed rate of
interest and the added benefit
of diversifcation in seven to
20 tax-free bonds. Plus, tax-
tYee unit trusts pay investors
a monthly check. They do,
however, generally yieht Jess
than individual bonds.
It is important to note that
tax-free mutual finns and unit
trusts may be subject to the
ahernative minimum tax as
well as state and local taxes.
In addition, the return and
principal value of nmnicipal
bonds, mutual hinds and unit
trusts will fluetuate based on
current market conditions.
Taxable vs. tax-free
Because of the tax advantages
they offer, tax-free investments
often provide significantly
more alter-tax income than
comparable taxable invest-
ments paying higher interest
rates. The chart below
compares the taxable yields
necessary to match the
return on tax-free bonds
after payment of federal
income tax.
tax-free mutual hinds pay
you monthly income; howew~r, 4.0%
the amount of your payment
is not fixed. \\
Tax-free unit
investment trusts
Maybe you're interested in
tile diversification of a mutual
fund, but you'd rather
You may not want to overlook
the benefits of tax-free
investing. If you want to free
yourself from taxes, contact
your investment-representative
for more information on these
and other tax-advantaged
investments..
*Source: IFDS Web site, www.ifdsgroup.com
MARGINAL
15% 27% 30%
Tax-free Yiekl TAXABLE EQUIVALENT YIELD
35%
5.57% 6.15%
8.22% 8.57%
This example does not represent current availabl~yates.
7.14% :7.69%
8.46% 8.96%
9.23% 9.77%
Buy and hold fo r I owe r taxes
Successful investors understand the I)enefits of buy-and-hold
investing. Choosing high-quality investments and [aolding them
ln(,rt as( ~ Your success,
for the long term not only " • .... s. chances for
it also reduces your taxes. But keep in mind that there are risks
associated with mutual fund and individual stock investing,
such as losing money.
a porttolio of attractive stocks. Look for funds that subscl
to a long-term, buy-and-hold strategy. Ask your investmel
representative or your fund's shareholder representative
fund's "turnover rate." Turnover measures how much tr~
occurs in a portfolio, The lower the turnover rate, the lo~
the capital gains taxes.
If you sell an investment after holding it less than one year,
any gain is taxed at your ordinary income rate, which may be
as high as 38.6 percent. But hold that investment tor at least
12 months, and your gain is taxed at 20 percent.
Avoid mutual fund turnover.
Although you can control when you buy and sell individual
stocks, you don't have the same control with stock mutual
fimds. If your mutual fund manager buys and sells frequently,
you could be sacrificing long-term returns to capital gains taxes.
That doesn't mean you should avoid mutual funds. They offer
professional mauagement and broad diversifcation, making
them a conw~nient and aftordable way tor some investors to own
Diversify.
If you have a large portion of your porttolio invested ill
eompany, you might consider selling some of your shares
diversify your pordolio. You will owe capital gains taxes,"~' ht
But the move could reduce the impact that an adverse
development could have on your entire portfolio.
Selling stocks simply to take advantage of lower long-ter
capital gains taxes is not a good idea. But if the outlook
a company whose stock you own has deteriorated, or if se
would improve your portfolio's overall diversification, it It
be a good time to take advantage of low, long-term capit~
gains tax rates. Contact your investment representative for
a free porttolio review.
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2 A D V E R T I
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