The Risk-Reward Blind Spot Part 1: Pre-Tax vs. Post Tax Returns
- Brandon Mull, CFA, CFP®
- 2 days ago
- 4 min read
The Risk-Reward Blind Spot Part 1: Pre-Tax vs. Post Tax Returns We frequently encounter investors who are highly satisfied with a 10% annual average return generated from their portfolio in its entirety, or a specific corner of it, depending on their risk level. On paper, a double-digit return sounds like an absolute home run. But looking strictly at top-line numbers isn’t the only way to track your financial pace. If you are a high earner living in a high-tax state, your marginal tax rate can easily hover around 40% or more when you factor in Net Investment Income Tax (NIIT), additional Medicare tax, and possibly Alternative Minimum Tax (AMT). When evaluated through an after-tax lens, that pristine 10% return shrivels down to a realized return closer to 6% or 7%.[1] |
