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An Investor’s Guide to the Capital Gains Tax

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

If you recently sold assets that you purchased for investment, such as a stock, bond or mutual fund — even real estate — and you sold it for more than you paid for it, you will more than likely owe income taxes on that capital gain.

The United States has been taxing capital gains in one way or another since the income tax originated in 1913. At various times during the twentieth century, the Internal Revenue Service (IRS) had rules that excluded a portion of long-term capital gains or applied a special tax rate to capital gains. In fact, for most of the history of the income tax, long-term capital gains have been taxed at a rate lower than ordinary income.

How the capital gains tax works

The taxation of capital gains depends on how long you have owned the asset you sell. Short-term capital gains, which occur on property you have owned for one year or less, are fully taxable as ordinary income (no favorable tax rate). Special long-term capital gains rates apply to property you have held for longer than one year. In 2019, long-term capital gains are taxed at 0%, 15% or 20% depending on how much total income a person has earned.

Here is an example of how the holding period works. If on January 23, 2019, you have a stock-based mutual fund you want to sell, you would have had to have owned that fund since January 22, 2018, for long-term capital gains tax rates to apply. If you bought it on July 16, 2018, instead, then any gain would be short-term.

Handling capital losses

Of course, when you sell any security there is a chance that you will incur a loss instead of a gain. If that happens, special rules apply for tax purposes.

First, you use short-term losses to offset any short-term gains, and long-term losses against long-term gains. Only then can you offset short-term against long-term. If your transactions for the year still show a loss, you can take a deduction of up to $3,000 for the year. If your loss is greater than $3,000, then you may carry the balance over to the next income tax year. Whether the carryover is short-term or long-term will depend on the result of netting short- and long-term gains and losses against each other.

Now that you know the rules, calculating your capital gain is fairly simple. Let’s say you bought 100 shares of XYZ stock for $1,000 on May 5, 2014. At the time, you paid a $25 commission to make the purchase. Your cost basis would then be $1,025. Five years later, you decide to sell the stock for $5,000 and also pay a $25 commission to make the sale. That means your proceeds are $4,975. Your long-term capital gain on this transaction is $3,950 — which you calculate by subtracting your $1,025 cost basis from your proceeds of $4,975.

How does it work when you have multiple transactions? Assume that Cindy sold three mutual funds during 2018. On the first transaction, she made a short-term profit of $1,800. On the second transaction, she had a long-term loss of $4,500. And on the third she had a long-term loss of $2,850. Cindy has a net short-term gain of $1,800 in 2018 and a net long-term loss of $7,350. When filing her taxes, Cindy will want to offset the gains and losses against each other. This reduces her net loss to $5,550.

For 2018, the federal income tax law allows Cindy to take a $3,000 deduction against her other income from things like salary, interest and dividends. That leaves her with a long-term loss carryover to 2019 of $2,550. Cindy will report all of her gains and losses on Schedule D of her 2018 Form 1040.

Special exceptions to watch for

Special rules apply to certain capital gains transactions. Any gain you incur on the sale of art and collectibles, for example, are taxed at ordinary income tax rates up to 28%. You can also exclude up to $250,000 in gains ($500,000 if married) on the sale of a principal residence if you meet certain conditions, including having lived in the property as your primary residence for two of the last five years before the sale.

5 strategies to minimize what you’ll owe

There are a number of helpful strategies investors may want to follow to try and minimize capital gains taxes.

1. Don’t sell

The best way to keep from paying capital gains taxes is to follow a long-term buy-and-hold strategy. Choose investments with the potential to grow over time, then save your money for a future goal such as retirement.

Spotting a buy-and-hold investment isn’t easy. If it is an individual stock, look for a company with a strong history of profits, a solid dividend and management with a track record of producing profits for investors. If you are investing in mutual funds, information is available on how the fund has performed over time. Also look at the track record of the fund manager. A history of doing well in all kinds of market conditions means this is an investment that might have a long-term place in your portfolio.

2. Invest in tax-advantaged vehicles

Tax-advantaged investments include things like individual retirement accounts (IRAs). Traditional IRAs are tax-deferred, meaning you don’t pay any tax until you withdraw money from the account, usually at retirement.

If you own a mutual fund in your IRA and you sell it at a gain, you don’t pay any taxes; you simply reinvest the proceeds in another investment. At retirement, you pay taxes at ordinary income tax rates.

Roth IRAs operate similarly, except you contribute after-tax dollars today and don’t pay any taxes on money you withdraw later, provided you are over age 59½ and the account has been in existence for at least five years.

3. Follow a tax-matching strategy

As noted earlier, any capital losses you incur first offset any capital gains with the same holding period. Then you offset short-term against long-term to get a final result.

If you sell something and incur a large gain, it’s time to do a little tax loss harvesting. That doesn’t mean you sell something just because it shows a loss, but ask your CPA or investment advisor to help you look through the portfolio. If you own a stock that has showed a loss for virtually the entire time you have owned it, selling it to minimize the tax impact of a capital gain might be a good idea.

Ann Reilley Gugle, a certified financial planner at Alpha Financial Advisors in Charlotte, North Carolina said that her firm uses two software programs to help clients match up gains and losses. Throughout the year she says Alpha uses a tool “trying to look for tax-loss harvesting opportunities.” Gugle said it is especially important to look for potential losses all year long. While 2018 had many loss opportunities, she emphasized that is not the case in every year.

The second software program Alpha uses identifies the capital gains distributions mutual funds will make and the “record date” (the date you have to own the fund to receive the distribution). Depending on the size of the distribution and how much of the fund the client owns, the advisors at her firm will “consider selling it temporarily and buying a comparable exchange-traded fund,” Gugle said. After waiting 30 days to avoid the wash-sale rule, they will rebuy the same fund and, of course, avoid having to pay tax on the capital gain distribution.

4. Donate appreciated property to charity

One thing you can do with securities that show a gain is to “give away” the gain to charity. Let’s say you make a donation to the same charity every year — perhaps the college you graduated from. Instead of making a cash donation, why not donate stock or a mutual fund instead?

Securities that have shown a significant gain can make great candidates for donation. You get the same charitable deduction you would have if you had donated cash, but you won’t have to pay tax on the gain. Plus, you get to keep the cash you would have donated. It’s a win for both you and the charity.

5. Strategically balance gains and losses

In addition to harvesting losses to offset a large gain, investors can pursue a broader strategy each year of selling some securities with a loss and some with a gain with the idea of offsetting one against the other. Why carry a loss into the next tax year? Instead, sell a security at a profit that you were thinking of selling anyway. That way you get immediate benefit from the loss instead of having to wait 12 months.

Gugle also cited a special situation for investors with especially large gains. They may want to consider investing in property within an Opportunity Zone, created by the Tax Cuts and Jobs Act in 2017. Gugle said taxpayers with an investment gain from property in a state-designated Opportunity Zone can defer tax on that gain. By owning the property long enough, Gugle said “the gain becomes part of your investment.”

Bottom line

Investors should continue to pay careful attention to the tax ramifications of the transactions they make. This includes managing capital gains, matching them with losses and looking for opportunities to give those gains away to charity. By doing so, investors can keep the capital gains taxes they pay as low as possible.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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What Are Equities and Should I Invest in Them?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Equities are shares of ownership in a company. Equity is just another way to describe stock — you’ll hear people use the terms “equity markets” and “stock markets” interchangeably. Investing in equities can be one of the best ways to build your long-term savings. This article covers the basics of what are equities, how do they work and what else you should know about investing in this market.

Equities are how you invest in the stock market

The broad equities definition is the value of a property or a business to the owners after subtracting debts. When you buy a house and begin making mortgage payments, you build home equity, which is the value of your property that you own outright.

Publicly traded companies, like Nike and Tesla, sell shares of their equity to investors to raise money. When you buy a company’s equity — aka its stock — you become a partial owner of the company. This comes with several benefits, including dividends.

Equities pay dividends

As an equity shareholder in a company, you are entitled to a share of its profits based on how much of the company’s stock you own. Companies from time to time will send their shareholders a cash payment called a dividend. The frequency of it depends on the company’s strategy.

Newer growing companies like Uber typically do not pay much in dividends because they reinvest their cash in operations to keep growing. On the other hand, established companies like Coca-Cola focus on paying more dividends to shareholders. So how do you start buying equities as an investor?

The equity market

Investors buy and sell equities from each other through the equity market. When you watch financial news and hear people talking about stock markets, this is what they mean. Some of the larger equity markets in the United States include the New York Stock Exchange and the Nasdaq.

If investors believe a company is doing well and will earn higher profits in the future, the price of its equities will go up. On the other hand, when a company runs into financial trouble, the price of its equities will fall. To access the equity markets, you sign up for a broker who will process your buy and sell trades. We list some of the best online brokers on our site you can use.

Common equity vs. preferred equity

A company can sell two types of equity to investors: common and preferred. With common equity, you earn money when the stock price goes up and when the company issues dividends. You also get the right to vote on certain company matters, like picking the board of directors.

Preferred equity has a few differences. First, preferred stock typically pays a fixed dividend rate, so you get money each year. On common stock, the company can choose when to pay dividends and it might not be every year.

Another difference is if the company ends up going bankrupt, they legally have to pay out preferred equity shareholders first — before they distribute whatever’s left of their remaining money to common shareholders. The downside of preferred equity is that it does not have voting rights. It’s also rarer. While you may be able to buy preferred stock for some companies, most shares on equity markets are common equity.

Why should you invest in equities?

Equities can be one of the most effective ways to build wealth and save for retirement. Over the past few decades, they have posted one of the highest average annual returns, better than other investments like bonds or gold.

By regularly saving money and investing in equities, your savings will benefit from compounding, which is simply where your money makes money. A dollar you put aside now could double, triple and possibly become more valuable in the future thanks to your investment gains.

On the other hand, if you just kept your savings in cash or a bank account with no interest, they won’t grow. This actually decreases your future buying power because of inflation, as prices go up over time. By growing your money with equities, you put yourself in a stronger position in the future while also generating income for today with dividends.

Finally, you can receive tax benefits by investing in equities using a retirement plan, like a 401(k) or a traditional IRA. You can deduct the amount you contribute to these accounts. You save on taxes today while putting aside money for the future. These accounts also delay taxes on your gains, so you don’t owe tax until you take money out.

What is an equity fund?

As a beginner investor, it can feel intimidating figuring out which equities to buy. One way to make things easier is by buying into an equity fund, which is a mutual fund that invests in stocks. Equity funds are mutual funds that combine the money from many small investors to build a large portfolio of different equities. The portfolio is then managed by a professional to meet the fund goals. Some common types of equity funds include:

  • Index fund: Index funds look to mimic the performance of an equity market, like the S&P 500. Rather than trying to guess the top performers, they buy shares of all the companies listed to keep costs low and track the average market return.
  • Active equity fund: In an active equity fund, the manager tries to find and buy the best equity shares in a market to hopefully earn a higher return. Fees can be higher on these funds though versus index funds.
  • Growth equity fund: These funds invest in companies focused on growth, meaning they aren’t paying as much in dividends with the long-term goal to grow their stock price by more.
  • Dividend equity fund: In comparison, dividend equity funds focus more on companies that generate income. Their share price may not grow as much long-term, but they generate more consistent dividend payments.
  • Sector-focused equity fund: Equity funds can also target companies in a specific part of the economy, like energy companies or health care companies.

How does shareholders’ equity work?

Shareholders’ equity shows how much value would be left for a company’s shareholders if it used all its assets (everything it owns) to pay off everything it owes (debts/liabilities). If the company had to shut down today, they would distribute this remaining money to their shareholders.

When a company has high shareholders’ equity, it means that it has more than enough assets to cover its debts. This could be a sign that the company is profitable, shown by a high level of retained earnings on the balance sheet. On the other hand, it could also mean that the company has raised a lot of money from investors. However, if a company has negative shareholders’ equity, it is running into financial trouble because it doesn’t have enough assets to pay off its debts.

How to calculate shareholder equity

Publicly traded companies release their financial statements so investors can check their performance before buying. They list their total shareholders’ equity on the balance sheet so you can look it up there.

You can also do the calculation yourself by adding up all the listed assets, then subtracting all the company liabilities on the balance sheet. If a company has $200 million in assets and $150 million in liabilities, its shareholder equity is $50 million.

You might get equity from your employer

Besides buying shares on the markets, you could also receive equity from your employer. Sometimes they just give shares directly through an equity grant. You could also receive equity stock options, where you are guaranteed to buy shares of a company’s equity at a set price.

If the market price goes higher than that, your options make money. For example, if your employer gives you the option to buy shares at $50, then if the market price goes to $80, you could cash in your option for a $30 per share profit.

When employers offer equity in a compensation package, they usually do so to reward loyal employees. You may need to work a minimum number of years to receive all your equity grants — for example, an employer may offer 1,000 shares, but you only get 20% for every year worked, so you’d need to stay on for five years to earn it all.

If you have any more questions about what are equities, which ones you should pick or your company’s compensation package, consider speaking with a financial advisor. They can help you plan your investments and figure out what role equities should play in reaching your long-term goals.

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Review of Voya Investment Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Voya Investment Management is a New York-based registered investment advisor that manages investments for institutions and individual clients. With 206 investment advisors, Voya Investment Management covers a wide range of investment strategies, including equity, fixed income, real estate and hard currency.

All information included in this review is accurate as of March 18, 2020. For more information, please consult the Voya Investment Management website.

Assets under management: $108,248,624,160
Minimum investment: $1,000, no minimum on some investment types
Fee structure: Assets under management
Headquarters location: 230 Park Ave New York, NY 10169
https://investments.voya.com/
212-309-8200

Overview of Voya Investment Management

Voya Investment Management got its start in 1972 when it was known as Aetna Capital Management. For many years the firm was a subsidiary of Amsterdam-based ING Holdings. But when ING began divesting its U.S. retirement, investment and insurance business in 2013, the firm rebranded to Voya, an abstract name meant to evoke the image of a “voyage.”

Today, Voya Investment Management Co. LLC is a registered investment advisor and is a wholly-owned subsidiary of Voya Holdings, which is in turn a wholly-owned subsidiary of Voya Financial Inc. (VOYA), a publicly traded company.

What types of clients does Voya Investment Management serve?

Voya Investment Management largely caters to institutional clients in its role as an advisor and sub-advisor. The firm manages the investments of other investment companies. In addition, Voya provides investment management directly to state and municipal governments, insurance companies, corporations, pensions, charitable organizations and banks and thrift institutions. Only about 2% of the amount of assets Voya manages is on behalf of individual investors.

Voya primarily charges a percentage of assets under management, though the firm also charges performance-based fees in some instances.

For institutional clients, Voya’s minimum ranges from $25 million to $100 million. Investors in R share classes, available through qualified retirement accounts, have no investment minimum. When it comes to mutual funds for individual investors, Voya typically has a $1,000 minimum.

Services offered by Voya Investment Management

For individual investors, Voya has a lineup of over 40 mutual funds covering such diverse asset classes as equities, infrastructure, real estate, hard currency and bonds. In addition, the company maintains a roster of target-date funds whose end dates range from 2020 to 2060 in five-year increments.

Alongside traditional mutual funds, many of these strategies also come in 40 variable portfolios that are available exclusively within variable annuity contracts.

Voya also provides portfolio management services to investment companies, small businesses, pooled investment vehicles, large businesses, selection of other advisors including private mutual fund managers and publications and newsletters.

For individual investors, Voya provides the following services:

  • Portfolio management
  • Selection of portfolio managers
  • Wrap programs
  • Publications of newsletters

How Voya Investment Management invests your money

Voya runs a number of index funds and strategies. For actively-managed strategies, Voya seeks to uncover value before the rest of the market. Voya uses the insights of its analysts for fundamental research into these hidden opportunities.

In addition, Voya has a number of equal-weighted funds. Unlike market-weighted portfolios, the strategy most index funds follow, equal-weighted funds allocate the same amount of assets to each name in the portfolio. The strategy is intended to minimize concentration in the market’s largest companies. Voya’s Corporate Leaders 100 and Global Perspective are two funds that employ this strategy.

In fixed income, Voya applies a macro view alongside bottom up security selection. In addition, Voya applies environmental, social and governance factors in its security selection when the managers believe it’s appropriate.

Portfolio/Fund Name Investment Strategy
Voya CBRE Global Infrastructure Infrastructure
Voya Corporate Leaders 100 Large Blend
Voya Diversified Emerging Markets Debt Emerging Markets Bond
Voya Emerging Markets Hard Currency Debt Emerging Markets Bond
Voya Floating Rate Bank Loan
Voya GNMA Income Intermediate Government
Voya Global Bond World Bond
Voya Global Corporate Leaders World Large Stock
Voya Global Diversified Payment World Allocation
Voya Global Equity Dividend World Large Stock
Voya Global Equity World Large Stock
Voya Global Multi-Asset World Allocation
Voya Global Perspectives Fund World Allocation
Voya Global Real Estate Global Real Estate
Voya High Yield Bond High Yield Bond
Voya Intermediate Bond Intermediate Core-Plus Bond
Voya International High Dividend Low Volatility Foreign Large Value
Voya Investment Grade Credit Corporate Bond
Voya Large-Cap Growth Large Growth
Voya Large Cap Value Large Value
Voya MidCap Opportunities Mid-Cap Growth
Voya Mid Cap Research Enhanced Index Mid-Cap Blend
Voya Multi-Manager Emerging Markets Equity Diversified Emerging Markets
Voya Multi-Manager International Small Cap Foreign Small/Mid Blend
Voya Real Estate Real Estate
Voya Russia Miscellaneous Region
Voya SMID Cap Growth Mid-Cap Growth
Voya Securitized Credit Multisector Bond
Voya Short Term Bond Short-Term Bond
Voya SmallCap Opportunities Small Growth
Voya Small Company Small Blend
Voya Strategic Income Opportunities Nontraditional Bond
Voya Target In-Retirement Target-Date Retirement
Voya Target Retirement 2020 Target-Date 2020
Voya Target Retirement 2025 Target-Date 2025
Voya Target Retirement 2030 Target-Date 2030
Voya Target Retirement 2035 Target-Date 2035
Voya Target Retirement 2040 Target-Date 2040
Voya Target Retirement 2045 Target-Date 2045
Voya Target Retirement 2050 Target-Date 2050
Voya Target Retirement 2055 Target-Date 2060
Voya U.S. High Dividend Low Volatility Large Value

Fees Voya Investment Management charges for its services

Typically, Voya Investment Management charges a percentage of AUM to manage clients’ money, though sometimes Voya has other billing arrangements in place.

For individual investors in Voya’s mutual funds, fees range from around 0.50% for the target date funds to 2.00% for the Voya Russia Fund. In addition, the A shares of the firm’s funds levy a 5.75% maximum upfront commission. However, investors can have the front-end load amount reduced with higher deposit amounts.

In addition, Voya also provides wrap program services to broker-dealers. If Voya is selected to be the investment, clients will pay one fee to their broker-dealer for Voya’s service and Voya bills the broker-dealer. In those cases, Voya charges less to the broker-dealer for its services than it would normally charge. However, clients may pay more than going to Voya directly.

Equity Funds Class A Shares Commissions
Total balance Fee
Up to $49,999 5.75%
$50,000-99,999 4.50%
$1 million-249,999 3.50%
$250,000-$499,999 2.50%
$500,000-999,999 2.00%
Over $1 million 0.25%-0.35% 12b-1 fees and 0.25% tail fee for 13 months
Fixed Income Funds Class A Shares Commissions
Total balance Fee
Up to $100,000 2.50%
$100,000-$499,999 2.00%
Over $500,000 N/A

Voya Investment Management’s highlights

  • Covers all bases: Voya’s investment lineup is exhaustive. In addition to typical asset classes, such as equities and fixed income, Voya also has offerings in alternative investments like real estate, global real estate, hard currency and Russian companies. Sophisticated investors who want exposure to these niche areas will be able to complete their portfolios, however, they might be assuming additional risk.
  • High customization: In separately managed accounts, Voya will tailor investments to the individual needs of its clients, such as excluding certain industries and securities if clients have an objection or emphasizing environmental, social and governance factors for those who prioritize that in their investments.
  • Best place to work: Over the years, Voya Investment Management has landed on several lists as a best place to work. For example, in 2019, the firm made it to Pension & Investment Magazine’s “Best Places to Work in Money Management” for the fifth consecutive year. In 2018, the firm was recognized as a “Best Place to Work for Disability Inclusion” by the American Association of People with Disability and the U.S. Business Leadership Network.
  • Low fees: While the gross expense ratio of Voya’s mutual funds seem high, the firm has contractually agreed to waive certain fees. As a result, many of Voya’s mutual fund fees are classified as either “below average” or “low” by Morningstar, the fund research company. On the other hand, A shares of the funds carry a 5.75% upfront commission.

Voya Investment Management’s downsides

  • Few offerings for individual investors: Voya Investment Management’s services are limited to investment management and don’t include financial planning. Further, its focus on institutional investors and high net worth clients mean that individuals who want to invest in Voya funds will first need to find a financial advisor (and pay a commission) to help them invest.
  • Collects performance fees: Voya’s use of performance fees could potentially push portfolio managers to take on additional risk in an effort to boost performance.
  • Potential conflicts of interest: Some Voya Investment Management employees are also registered representatives of Voya Investment Distributors and can receive a commission for the sale of investments managed by Voya. This creates an inherent conflict of interest since these representatives receive financial remuneration for their recommendations.
  • Could be on the auction block: Voya Financial, the parent company of Voya Investment Management, held talks to sell itself in late 2019 with several big insurance companies. Though the talks didn’t result in a sale, there’s speculation that the firm could be on the market with private equity companies in the mix of potential buyers. A sale could result in some disruption for investors as the company transitions from one owner to another.

Voya Investment Management disciplinary disclosures

In 2013, two directors of ING Pomona Private Equity, a closed-end fund of funds and a Voya affiliate, organized in Luxembourg, ran afoul of Luxembourg securities regulation when they failed to file the annual financial statement in a timely manner with the Luxembourg Commission de Surveillance du Sector Financier. The fund received a fine of 2,000 euros. The directors argued that they are not engaged in day-to-day fund activities such as filing annual statements. What’s more, since the fund is a fund-of-funds, it must first receive financial statements from the underlying portfolios in order to file its own annual statement. Besides the monetary fine, there were no other actions taken.

Voya Investment Management onboarding process

To access one of the Voya funds or strategies you’ll need to go through an intermediary, whether that’s a financial advisor or a retirement plan at work. You can get a prospectus for a Voya Investment Management fund by calling 800-992-0180.

Is Voya Investment Management right for you?

Voya has a wide range of investment options that can be the backbone of most people’s investment portfolios. It’s suite of below average and low-fee funds (after sales charges) speak favorably of the line.

However, because Voya’s primary business is institutional, individual investors can only access Voya’s investment strategies through an intermediary such as a financial advisor or in a workplace retirement plan. Advisors who sell Voya funds collect an upfront commission, giving them a financial incentive to do so. Investors need to weigh whether the added cost, plus the potential conflict of interest, are worth it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.