Let 's say I am a few years away from retirement and have significant taxable income in one of the high tax states. What would be my investment strategy here in relation to the taxes?
1) I can invest into tax free municipal bonds. It will pay me 5% tax free and pretty much risk free.
2) I can insect into index fund. On average S&P 500 pays 10%. But if I have to pay taxes from this every year, I end up with 5% after taxes. And there is some risk.
3) I can buy S&P 500 ETF. Which supposed to yield 10% before taxes (on average). Then I hold it till retirement and only pay then at lower rate. This sounds promising, but there are so many different opinions on the internet on how the ETF are taxed if I hold it for more than a year and what the tax rate do they apply to? And would I pay a state tax, if I move to a low state tax state?
4) I look up S&P 500 composition and buy the same stocks in the same ratios and hold these stocks till retirements. Hopefully that would be more than a year and I will predictably pay capital gain when I sell them. And since S&P 500 gives 10%/year and it will compound till I sell, this would give me a best tax deferred strategy.
I guess combination of 1) and 4) gives the best risk adjusted and tax deferred outcome.
or as gen-Z are saying, I should “YOLO and invest in Cocaine and Prostitutes”?
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