๐๐ผ๐ ๐ง๐ต๐ถ๐ ๐ฃ๐ผ๐ฟ๐๐ณ๐ผ๐น๐ถ๐ผ ๐๐ ๐ข๐ฝ๐๐ถ๐บ๐ถ๐๐ฒ๐ฑ ๐๐ผ๐ฟ ๐๐ผ๐ป๐ด ๐ง๐ฒ๐ฟ๐บ ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ๐
I manage this portfolio to maximize returns after expenses for people who maintain their copy for more than a year.
๐ง๐ฎ๐ ๐ฎ๐๐ถ๐ผ๐ป
This is by far the biggest expense for profitable investors.
While it is not possible for me to perfectly tax optimize the portfolio for all countries that my copiers pay tax in (different jurisdictions have different tax laws and regulations), there are some taxation principles which are relatively universal so I optimize for those - the main ones are:
โข Long term capital gains (on assets held for more than 1 year) receive discounted tax rates compared to gains on assets held for less than 1 year.
โข Long term capital losses can be carried forward and used to offset future long term capital gains.
I typically hold positions for more than a year to take advantage of lower tax rates. When you first begin copying you will begin to accrue these benefits, but youโll only realize them once your copy has been going for more than a year.
๐ฆ๐บ๐ฎ๐น๐น ๐ง๐ฟ๐ฎ๐ป๐๐ฎ๐ฐ๐๐ถ๐ผ๐ป ๐ฉ๐ผ๐น๐๐บ๐ฒ
Although eToro does not charge commissions or fees for copy trades, we all still have to pay the spread - the difference between the Buy and Sell prices. There are many studies that show that more frequent trading results in lower returns with transaction costs being one of the main issues - see the following paper to see how dramatic this effect can be: faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Because I typically hold positions for more than a year I minimize the number of transactions and consequently minimize the impact the spread has on portfolio performance.
Additionally, when I periodically rebalance the portfolio I prioritize minimizing transactions over getting the โperfectโ balance as transaction costs tend to dominate minor changes in weightings when it comes to expected returns. I abide by this policy even when it means having to raise the minimum recommended copy amount as I have done a few times since I started this portfolio.
๐ก๐ผ ๐๐ง๐ ๐ ๐ฎ๐ป๐ฎ๐ด๐ฒ๐บ๐ฒ๐ป๐ ๐๐ฒ๐ฒ๐
ETFs (Exchange Traded Funds) charge fees called a Management Expense Ratio (MER) which are typically deducted from dividends and capital gains. When you copy a portfolio that holds ETFs you are paying those fees to the ETF managers. Those fees are an annualized percentage of AUM (Assets Under Management) and typically range from as little as 0.03% for some index funds all the way up to 2.5% for some actively managed funds (and some have additional performance fees).
For example: Ark Invest charges 0.75% for actively managing their $ARKX space related ETF ( see ark-funds.com/funds/arkx/ ) and iShares charges 0.40% for their index based Aerospace & Defense $ITA ETF ( see www.ishares.com/us/products/239502/ishares-us-aerospace-defense-etf )
I exclude ETFs and avoid their fees which can add up to significant amounts over the course of long term investments - you can think of these fees as having a negative compounding affect.
๐ฆ๐๐บ๐บ๐ฎ๐ฟ๐
Whenever there is tension between serving the interests of long term vs. short term copiers, I will prioritize the interests of long term copiers. For example I may decide to delay closing a position Iโve held for 11 months until it has been in the portfolio for 12 months, even if I have reason to believe the stock price might decline before then. In this case the short term copier might get a lower return than if I had closed the position immediately, while the long term copier potentially gets a better return after tax than they would have if I closed the position earlier.
I specialize in investing in the exponentially growing space industry and my portfolio outperformed the S&P 500 by more than 25% in 2022. If youโre interested, take a look at my overview for potential copiers at www.etoro.com/posts/0__entry__7d340bfc-6129-4fa4-986d-9086f4eb036d... Show More
