Taxes and trading

Short-term trading is best done in a long-term account. Why? the impact of taxes. Recent discussions with some high net worth investors suggest that active trading should be placed in tax sheltered accounts or there should be an implicit increase in return to offset the fact that taxes will be higher. The cost of making more decisions is that the government will take more. More return is needed versus any buy and hold strategy.

All hedge funds should have a tax efficiency rating. Managers should be expected to beat a long-term index play by at least the marginal tax difference, and more should be done to focus on what accounts should have active trading. Alternative investments should be in tax protected accounts.