After-tax returns

Investment management requires finding the solution to a highly complex problem involving multiple variables. Some are outside our control, such as market performance, but others—like the impact of taxes—can be managed and have a relevant impact on the final performance of portfolios.

While it is possible to design sophisticated tax-structuring solutions, there are others that are much simpler and readily available that can move the needle on investors' net return.

A first example is evaluating the use of the APV (voluntary pension savings) regime and agreed deposits for high-income individuals. This allows investing gross income and/or obtaining the benefit in the next tax refund, generating a direct impact on tax payments.

Additionally, understanding and evaluating whether it is appropriate to use funds with stock-market presence (with the benefit of paying a fixed 10% rate on capital gains) versus others that don't have it can be a source of several percentage points of net, after-tax return. Not for all types of investment and structures is one necessarily better than the other.

Finally, using different jurisdictions in the vehicles (Luxembourg, Ireland) can also have benefits, even for the same asset class.

This is why, although it may sound obvious, it is essential to incorporate tax suitability as an explicit objective in investment policies; investors seek after-tax returns (and not before-tax).