When calculating return requirements for a taxable investor we always divide the pre-tax return requirement by (1-Tax Rate). This seems somewhat silly to me since only non-qualified dividends and interest (at least in the US) will be taxed at this rate. I will admit that I am pretty uneducated on the tax policies of other countries, but does this strike anybody else as odd? Especially for a young personal who will have most of the money in growth oriented investments the error gets even worse. Am I making a mistake in the way I am viewing this? Don’t get me wrong, I will do it the way the CFAI wants it if I am looking at this the right way.
i do think it is an overly simplifying assumption we have to make to do it the cfai way. But it would also be the most conservative assumption to make, which cfai probably likes? not sure.
In all the questions I have seen so far they clarify what tax rate to use for what. Like: 20% for dividends, capital gains, and income. I think the CFAI generally tries to simplify this… ie you just need to know that it is important to take the taxes into account, you aren’t expected to be a tax expert.