Managed Fund are not always a good idea | Summary and Q&A

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August 11, 2021
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Investor Motivation
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Managed Fund are not always a good idea

TL;DR

Managed funds can have negative tax consequences for investors, especially those investing outside of superannuation, due to realized capital gains and taxable distributions.

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Key Insights

  • 🥺 Managed funds can lead to undesirable tax outcomes for investors, particularly when investing outside of superannuation.
  • 🚕 Direct investments in specific companies can provide better tax management, transparency, and cost reduction.
  • 🚕 Managed funds offer diversification and professional fund management, but they may not consider individual investors' tax scenarios.
  • 🚕 Within superannuation, managed funds' tax implications are less significant, as the maximum tax rate is 15%.
  • 🥹 Unrealized capital gains from long-term managed fund holdings can generate unexpected tax liabilities for investors.
  • 👻 Investing directly allows for offsetting capital gains with losses from other companies, providing better tax optimization.
  • ✋ Fees associated with managed funds can be high, whereas direct investments can reduce costs.

Transcript

g'day and welcome to this week's video my name is robert gowdy and this week we're going to have a chat about managed funds and the the tax outcomes of these products are not always ideal and i'm going to look at them from a point of view of perhaps from non-superannuation assets that they're not the most ideal structure to own your assets and the ... Read More

Questions & Answers

Q: What are the tax implications of investing in managed funds outside of superannuation?

When investing outside of superannuation, managed funds can generate substantial taxable capital gains and distributions, potentially leading to extra tax payments and impacts on government benefits.

Q: Can the tax implications of managed funds be avoided within superannuation?

Within superannuation, the maximum tax rate is 15%, making the tax consequences of managed funds less of an issue. Retirees with significant pension balances can enjoy tax-free investment income.

Q: How does investing directly in specific companies help manage tax outcomes?

Direct investments allow for better tax management as investors can buy stocks at the current cost price, avoiding unrealized capital gains from past managed fund investments. Additionally, offsetting capital gains with losses from other companies is possible.

Q: What other downsides are associated with managed funds?

Apart from tax implications, managed funds often come with high fees. Additionally, they limit control and transparency for investors. Direct investments offer cost reduction, transparency, and investor control.

Summary & Key Takeaways

  • Investing in managed funds outside of superannuation can lead to undesirable tax outcomes, as investors may be subject to substantial capital gains and taxable distributions.

  • While managed funds offer benefits such as diversification and professional fund management, they may not consider individual investors' tax scenarios, resulting in unexpected tax liabilities.

  • To mitigate tax implications, opting for direct investments in specific companies allows for better tax management, transparency, and cost reduction.

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