I understand the basic stuff. That is if I have an unrealized loss on an Asset I can use that to reduce my tax burden. However after that the text goes on to talk about investing the tax savings and I get lost from there onwards. Help would be appreciated.
kh.asif Wrote: ------------------------------------------------------- > I understand the basic stuff. That is if I have an > unrealized loss on an Asset I can use that to > reduce my tax burden. However after that the text > goes on to talk about investing the tax savings > and I get lost from there onwards. Help would be > appreciated. think in terms of postponing the tax payment. If you were to pay now you would have to realise the tax and remove N*Tax from your portfolio/account now. But by deferring the tax payment you have the ability to invest the full portfolio including the N*Tax. At a later date when the deferred tax is due, that N*Tax which you were able to invest for the period is now worth (1+r)(N*Tax)… you pay N*Tax and you are left with r(N*Tax) which is your tax alpha.
Thanks. Makes sense. Let me make some conclusions based on what you said 1. The tax alpha=return*(N*Tax) and not N*tax. 2. There is no tax alpha if I do not invest the tax savings amidoinitrite?