© 2012 Morningstar, Inc. All rights reserved. 4/1/201214-0906-23- (0412) - 1Taxes and InvestmentPerformanceNorthwestern Mu...
14-0906-23- (0412) - 2Comparison of Highest and Lowest Marginal Tax Rates1926–2011© 2012 Morningstar, Inc. All rights rese...
14-0906-23- (0412) - 3Ibbotson® SBBI®Stocks, Bonds, Bills, and Inflation 1926–2011Past performance is no guarantee of futu...
14-0906-23- (0412) - 4Ibbotson® SBBI® After Taxes1926–2011Past performance is no guarantee of future results. Hypothetical...
14-0906-23- (0412) - 5Ibbotson® SBBI® After Taxes and Inflation1926–2011Past performance is no guarantee of future results...
14-0906-23- (0412) - 6Taxes Significantly Reduce Returns1926–2011Past performance is no guarantee of future results. This ...
14-0906-23- (0412) - 7Lower Capital Gains Taxes Have Benefited Stocks in Recent YearsSpread between before- and after-tax ...
14-0906-23- (0412) - 8Benefits of Deferring TaxesHypothetical value of $10,000 invested in stocks. This example is for an ...
Upcoming SlideShare
Loading in …5
×

Taxes and investments

229 views

Published on

Tax and Investment Performace Visual.

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
229
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Taxes and investments

  1. 1. © 2012 Morningstar, Inc. All rights reserved. 4/1/201214-0906-23- (0412) - 1Taxes and InvestmentPerformanceNorthwestern Mutual is the marketing name for The Northwestern Mutual Life InsuranceCompany, Milwaukee, WI (NM) (life insurance, disability insurance, and annuities) and itssubsidiaries. Securities offered through Northwestern Mutual Investment Services, LLC (NMIS), asubsidiary of NM, broker-dealer and member FINRA and SIPC.For illustrative purposes only and not indicative of any investment. Past performance is no guarantee of futureresults. No investment strategy can guarantee a profit or protect against a loss.
  2. 2. 14-0906-23- (0412) - 2Comparison of Highest and Lowest Marginal Tax Rates1926–2011© 2012 Morningstar, Inc. All rights reserved. 4/1/201280604020100% Marginal tax rate1926 1936 1946 1956 1966 1976 1986 1996 2006• Highest rate• Lowest rate0Source: Pechman, Joseph A., Federal Tax Policy, fifth edition, The Brookings Institute, 1987; Standard Federal Tax Reports, CCH; Federal Individual IncomeTax Rates History, www.taxfoundation.org; Tax Policy Center, Historical Top Tax Rate, www.taxpolicycenter.org.
  3. 3. 14-0906-23- (0412) - 3Ibbotson® SBBI®Stocks, Bonds, Bills, and Inflation 1926–2011Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestmentof income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannotbe made directly in an index. © 2012 Morningstar, Inc. All rights reserved. 4/1/20120.101101001,000$10,0001926 1936 1946 1956 1966 1976 1986 1996 2006$15,532$3,045$21$13Compound annual return• Small stocks 11.9%• Large stocks• Government bonds• Treasury bills• Inflation9.85.73.63.0 $119Small stocks in this example are represented by the fifth capitalization quintile of stocks on the NYSE for 1926–1981 and the performance of the Dimensional Fund Advisors, Inc.(DFA) U.S. Micro Cap Portfolio thereafter. Large stocks are represented by the Standard & Poor’s 90 index from 1926 through February 1957 and the S&P 500® index thereafter,which is an unmanaged group of securities and considered to be representative of the U.S. stock market in general. Government bonds are represented by the 20-year U.S.government bond, Treasury bills by the 30-day U.S. Treasury bill, and inflation by the Consumer Price Index. Underlying data is from the Stocks, Bonds, Bills, and Inflation®(SBBI®) Yearbook, by Roger G. Ibbotson and Rex Sinquefield, updated annually.
  4. 4. 14-0906-23- (0412) - 4Ibbotson® SBBI® After Taxes1926–2011Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926, with taxes paid monthly.No capital gains taxes are assumed for municipal bonds. This is for illustrative purposes only and not indicative of any investment. An investmentcannot be made directly in an index. Assumes reinvestment of income and no transaction costs. © 2012 Morningstar. All Rights Reserved. 4/1/2012$1,0001001010.101926 1936 1946 1956 1966 1976 1986 1996 2006$12.59$6.61$22.58$42.18$609.39Compound annual return• Stocks 7.7%• Municipal bonds• Government bonds• Treasury bills• Inflation4.43.73.02.2Federal income tax is calculated using the historical marginal and capital gains tax rates for a single taxpayer earning $110,000 in 2010 dollars every year. This annual income is adjusted using the ConsumerPrice Index in order to obtain the corresponding income level for each year. Income is taxed at the appropriate federal income tax rate as it occurs. When realized, capital gains are calculated assuming theappropriate capital gains rates. The holding period for capital gains tax calculation is assumed to be five years for stocks, while government bonds are held until replaced in the index. No capital gains taxes onmunicipal bonds are assumed. No state income taxes are included.Stocks in this example are represented by the Standard & Poor’s 90 index from 1926 through February 1957 and the S&P 500® index thereafter, which is an unmanaged group of securities and consideredto be representative of the U.S. stock market in general . Municipal bonds are represented by 20-year prime issues from Salomon Brothers’ Analytical Record of Yields and Yield Spreads for 1926–1984 andMergent’s Bond Record thereafter. Government bonds are represented by the 20-year U.S. government bond, inflation by the Consumer Price Index, and Treasury bills by the 30-day U.S. Treasury bill.
  5. 5. 14-0906-23- (0412) - 5Ibbotson® SBBI® After Taxes and Inflation1926–2011Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926, with taxes paid monthly.No capital gains taxes are assumed for municipal bonds. Assumes reinvestment of income and no transaction costs. This is for illustrative purposesonly and not indicative of any investment. An investment cannot be made directly in an index. © 2012 Morningstar. All Rights Reserved. 4/1/20120.10110$1001926 1936 1946 1956 1966 1976 1986 1996 2006$0.53$1.79$3.35$48.41Compound annual return• Stocks 4.6%• Municipal bonds• Government bonds• Treasury bills1.40.7–0.7Federal income tax is calculated using the historical marginal and capital gains tax rates for a single taxpayer earning $110,000 in 2010 dollars every year. This annual income is adjusted using the ConsumerPrice Index in order to obtain the corresponding income level for each year. Income is taxed at the appropriate federal income tax rate as it occurs. When realized, capital gains are calculated assuming theappropriate capital gains rates. The holding period for capital gains tax calculation is assumed to be five years for stocks, while government bonds are held until replaced in the index. No capital gains taxes onmunicipal bonds are assumed. No state income taxes are included.Stocks in this example are represented by the Standard & Poor’s 90 index from 1926 through February 1957 and the S&P 500® index thereafter, which is an unmanaged group of securities and considered tobe representative of the U.S. stock market in general . Municipal bonds are represented by 20-year prime issues from Salomon Brothers’ Analytical Record of Yields and Yield Spreads for 1926–1984 andMergent’s Bond Record thereafter. Government bonds are represented by the 20-year U.S. government bond, inflation by the Consumer Price Index, and Treasury bills by the 30-day U.S. Treasury bill.
  6. 6. 14-0906-23- (0412) - 6Taxes Significantly Reduce Returns1926–2011Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment.An investment cannot be made directly in an index.© 2012 Morningstar. All Rights Reserved. 4/1/20127.7%5.7%3.7% 3.6%3.0%0246810%Stocks Stocks aftertaxesBonds aftertaxesBonds Cash Cash aftertaxesInflation9.8%2.2%Federal income tax is calculated using the historical marginal and capital gains tax rates for a single taxpayer earning $110,000 in 2010 dollars every year. This annual income is adjusted using the ConsumerPrice Index in order to obtain the corresponding income level for each year. Income is taxed at the appropriate federal income tax rate as it occurs. When realized, capital gains are calculated assuming theappropriate capital gains rates. The holding period for capital gains tax calculation is assumed to be five years for stocks, while government bonds are held until replaced in the index. No state income taxesare included.Stocks in this example are represented by the Standard & Poor’s 90 index from 1926 through February 1957 and the S&P 500® index thereafter, which is an unmanaged group of securities and considered tobe representative of the U.S. stock market in general. Government bonds are represented by the 20-year U.S. government bond, cash by the 30-day U.S. Treasury bill, and inflation by the Consumer PriceIndex. The data assumes reinvestment of income and does not account for transaction costs.
  7. 7. 14-0906-23- (0412) - 7Lower Capital Gains Taxes Have Benefited Stocks in Recent YearsSpread between before- and after-tax returns over various holding periodsPast performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment.An investment cannot be made directly in an index.© 2012 Morningstar. All Rights Reserved. 4/1/2012• Stocks• Bonds5-year0231-year 10-year 20-year4% Return spread10.3%2.7%0.6%0.3%0.3%2.8%3.4%2.1%Federal income tax is calculated using the historical marginal and capital gains tax rates for a single taxpayer earning $110,000 in 2010 dollars every year. This annual income is adjusted using the ConsumerPrice Index in order to obtain the corresponding income level for each year. Income is taxed at the appropriate federal income tax rate as it occurs. When realized, capital gains are calculated assuming theappropriate capital gains rates. The holding period for capital gains tax calculation is assumed to be five years for stocks, while government bonds are held until replaced in the index. No state income taxesare included.Stocks are represented by the Standard & Poor’s 90 index from 1926 through February 1957 and the S&P 500® index thereafter, which is an unmanaged group of securities and considered to berepresentative of the U.S. stock market in general. Bonds are represented by the 20-year U.S. government bond. The data assumes reinvestment of income and does not account for transaction costs.
  8. 8. 14-0906-23- (0412) - 8Benefits of Deferring TaxesHypothetical value of $10,000 invested in stocks. This example is for an investor in the 28% bracket using the 2011 tax code.Assumes an 8% annual total return. Estimates are not guaranteed. This is for illustrative purposes only and not indicative ofany investment. © 2012 Morningstar. All Rights Reserved. 4/1/2012to retirement050100150200$250k5 years 10 15 20 25 30 35 40 45• Value of taxable account• Value of tax-deferred accountThis hypothetical example is for an investor in the 28% bracket using the 2011 tax code (estimated to become the 31% tax bracket in 2013). $10,000 is invested in stocks at thebeginning of year 1 (2012). Assumes an 8% annual total return (6% price return and 2% income return) and a 15% tax rate on capital gains and dividends in year 1 (2012), afterwhich the rates revert to 20% and the investor’s marginal tax rate, respectively. The investment is taxed at a 28% marginal tax rate in year 1 (2012), and then reverts to 31%. Taxesare assessed yearly on the taxable account but only at the end of the period on the tax-deferred account. Estimates are not guaranteed.

×