When investing, you should always account for taxes that’ll have to be paid on the returns of the investment.
This is something that sounds obvious, but is still often overlooked.
You might for example expect to make 15% on an investment in the Canadian stock market. However, these gains will be taxed. This means that after taxes, the gains on this investment will be significantly lower. Depending on the relevant tax rate, this could be as much as a few percent.
The decision of making an investment should therefore always account for the taxes that will have to be paid on the back end. It reduces the profitability of the investment in the first place. You’re then left with a more realistic picture of what the investment will look like when you decide to cash in your returns.
The effects of taxes on investing should never be overlooked. It creates major flaws in your calculations. Other opportunities might seem less valuable when the taxes aren’t accounted for. This leads to bad decision making.
The greatest financial decisions are always made when the right information is used.