Day 24: Put in Place a System to Track Investment Costs
Degree of difficulty: Easy to Moderate
When it comes to matters of money and investing, my mantra is focus on what you can control. In the "can't control" column are a grab bag of macroeconomic factors: interest rates, the level of inflation, and the direction of the pound. On the flipside, you have a lot more control over your own savings rate, the composition of your portfolio, and even the amount of investment-related taxes you pay.
Maxing out your contributions to available tax-sheltered vehicles (Day 16 in our financial fitness regimen) is just one way you can reduce the State's claim to your investment returns. One other lever is selling your losing holdings to offset taxable capital gains from winning holdings in your portfolio.
Key to executing this strategy is keeping good record of your cost basis--the price you paid for individual securities in your taxable portfolio, including commissions and other expenses. The more precise your record-keeping, the better you can take advantage of more sophisticated tax-loss selling methods, such as specific share identification. Brokerage and fund firms, as well as financial software packages, have begun providing increasingly sophisticated tools for tracking your cost basis.
Setting up your own tracking system isn't difficult. Simply get in the habit of recording the name and number of shares you purchased, as well as the pound amount and the date on which you purchased them. (Don't forget reinvested dividends too.)
The Government's Money pages provide further details on Capital Gains Tax and offsetting losses.
Return to the article: "The 30-Day Financial Fitness Plan".
