Risk and Tax Considerations in One's Portfolio

Q. What's a good way to evaluate my retirement portfolio?

A. There are many Investment and Saving products a person could choose to build a portfolio, you can also analyze your portfolio from many different angles.

Below we will introduce an approach to check your portfolio from risk and tax perspectives.

Your portfolio could have 3 categories of risk levels: no/low risk, moderate risk, and high risk. The table below summarizes the common characteristics of each category:

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No/Low Risk
Guaranteed returns
No principal loss
High liquidity
Low return potential

Moderate Risk
Limited principal protection
Moderate volatility
Limited liquidity
Moderate return potential

High Risk
Higher volatility
Higher return potential
Higher chances of losing money

From taxation perspective, your portfolio could also have 3 categories of levels: taxable, tax deferred, and tax advantaged. The table below summarizes the common characteristics of each category:

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Taxable
After-tax contributions
Tax due on annual returns
Capital gain (CG) tax on withdrawal of CG
CG withdrawals impact social security taxation

Tax Deferred
Allow both before-tax and after-tax contributions
Tax due on entire withdrawal
Entire withdrawal affects social security taxation
Undesirable if future taxes are higher

Tax Advantaged
After-tax contributions
Tax-free withdrawal options
May require qualification
May not impact social security taxation

What kind of portfolio are you building?
You can use the following matrix to first determine the desired percentage mix, then check against your actual investment and saving product allocations and see if you are far away from your desired allocations.

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Taxable


Tax Deferred


Tax Advantaged

No/Low Risk

Moderate Risk




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High Risk