San Diego Housing Bubble News and Analysis

Is this assumption correct?

Generally, No.
You will have again or a loss each time you sell a position. You will pay taxes on the net gain each year (long-term and short-term gains are treated differently). This is regardless of whether you manage the funds or not. I assume that this is a money manager who is buying and selling stocks, etc.

However, if the money manager takes your funds and puts them in a pool, e.g. a mutual fund, then you are taxed each year based on the net gains/losses incurred by that fund in each year.

If so, is there a way to manage your own money/investments without paying taxes until you cash out or something similar?

Yes, well sort of ... Build a portfolio based on index ETFs and hold without selling. You will have dividends, but no captial gains until you sell.

disclaimer : I am not a tax lawyer or a financial advisor. The advice above is based on personal experience.

Quick question about the tax implications of these two options. My assumption (and I could very well be wrong) is that if I hire a money manager to invest for me, that I'm not taxed on the increase in my portfolio until I choose to sell/cash out.

No. It is the same as if you had done the trades yourself. You should get a 1099 or equiv showing a breakdown in long and short term gains as shown above. In using a money manager, you are paying for their 'expertise' in making investment decisions.

If so, is there a way to manage your own money/investments without paying taxes until you cash out or something similar?

Yes, well sort of ... Build a portfolio based on index ETFs and hold without selling. You will have dividends, but no captial gains until you sell.

yes.. see: http://www.fool.com/investing/etf/2006/1...

However, if the money manager takes your funds and puts them in a pool, e.g. a mutual fund, then you are taxed each year based on the net gains/losses incurred by that fund in each year.

Kind of.. gets more complicated..
http://individual.troweprice.com/public/...

ucodegen - good point on tax treatment of Mutual funds. Depends on the trades the fund makes and ultimately the type and timing of distributions.
These distributions happen typically in December.
Something to definitely be aware of, since you can pay taxes on a capital gain distribution that the fund makes even if you don't have any gain personally. It's a non-event for tax-deferred accounts, but in taxable accounts it sucks.

I generally prefer ETFs, so that I can control the tax consequences more directly.

Thanks for all the info everyone, much appreciated. If I get a 1099 every year from my portfolio manager, then essentially there is no tax benefit to using a manager (assuming the same investments). This is exactly what I wanted to know, thanks.

I'm not saying there's no benefit mind you...just saying there's no tax benefit.

Thanks for the info about the ETFs...i'll give that a look as well.

Is it just me or is our tax system a bit complicated? Flat tax anyone?!

Yes, taxes are way too complicated, it's not just you.

If only it was so easy. A flat tax would do little to simplify our tax system. Since the early to mid 80's we've had only 3 or 4 different tax rates. Before then (as I recall) it was closer to 8 to 10. Even that wasn't so complicated. 10 seconds with a calculator is all it took. Most of the complications are related to computing taxable income. Simplifying that isn't so simple.