Dollars and Diagrams

Where to Speculate – The Parabolic Problem

Investments

Let’s say you want to speculate with a portion of your portfolio. Let’s assume you get the desired result (or better) and you get a parabolic return (for example, you turn $10k into $300k). Where should this speculative position be in your portfolio? Probably not your taxable account.

If you are right, you want to keep as much of the gain as possible.

  • Taxable Account – You will pay capital gains upon selling the security
  • Tax-Deferred – You create a tax bill for a future date
  • Tax-Free – Inside of a Roth IRA or a Roth 401(k), selling a profitable investment will not trigger a tax bill as long as the funds remain in the Roth account.

Start with the end in mind.

IMPORTANT INFORMATION

Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.

A Roth account offers tax deferral on any earnings in the account. Qualified withdrawals of learning from the account are tax-free. Withdrawals of earnings prior to age 591/2 or prior to the account being opened for 5 years, which is later, may result in a 10% IRS penalty tax.

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