I would like to illustrate how tax-deferred earnings work.

If you had the option, would you rather pay the same tax rate on the seeds or the harvest?

I would prefer not to be taxed at all, but that ain’t gonna happen. Well, it can, but that’s another post.

Farmers know the answer to this, and if you have read and understand the first four chapters of Missed Fortune 101 you would know that the answer is…

The seed.

The seed, an investment of $500 gets taxed or a harvest worth $500,000 gets taxed. It is always better to pay the taxes and fees upfront. This also means purchasing Class A shares of stocks and mutual funds. Those other classes of shares will get their fees during the growth and on the harvest. I’d rather pay 5% upfront than pay 2% upfront and an extra 1% every year and 1% at the end. Make sure to read and understand the prospectus for any fund you want to invest in.

Tags: finance, taxes, investing