The effect of taxes in long term investing

The Real Affect of Taxes and Inflation on Investment Returns

Excerpts from the Book – Preserving Wealth – written by Jack Lumsden, MBA, CFP®

Over the long term, taxation and inflation reduces your real purchasing power. The result can be quite dramatic and must be taken into consideration when investing.

How do Taxes and Inflation affect investment returns?

“You haven’t considered the other risk factors related to investment planning, namely inflation, taxes, and the very real worry that you might outlive your supply of money.”

Again, Uncle Wayne shuffled through his papers to fish out another chart for us.

“Let’s say that in 2019, you invested $100,000 for a twenty-year period in a GIC with an average return of 3.5% before taxes:

2019 $100,000 (investment)

2038 $198,979 (3.5% return, no taxes)

“But you do have to pay taxes, so let’s assume your tax rate is 40%. That would mean your after­ tax growth is 2.1%, so let’s add that factor to the list.

2019 $100,000 (investment)

2038 $198,797 (3.5% return, no taxes)

2038 $151,536 (2.1% return, after tax)

“Your investment doesn’t look so healthy anymore, and we’re not even finished. We must count inflation as another factor, so let’s use a long-term inflation average of 2% and add that to our list.

2019 $100,000 (investment)

2038 $198,797 (3.5% return, no taxes)

2038 $151,536 (2.1% return, after tax)

2038 $101,979 (0.1% return, after tax, after inflation of 2%)

“What looked like a good investment before taxes and inflation now appears to be pretty darn poor. Your $100,000 has only grown to $101,979 in today’s dollars after twenty long years.”

For more information you can refer to Chapter 3: Protecting and Preserving your Wealth from the book Preserving Wealth: The Next Generation – The definitive guide to protecting, investing and transferring wealth by Jack Lumsden, MBA, CFP®


This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.

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