aftertax yield

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Aftertax Yield

An investment's rate of return after subtracting all applicable taxes, expressed as a percentage. Most analysts prefer to look at afterax yield instead of pretax yield when weighting investment decisions. Mutual funds are required to disclose their aftertax yields to provide the most accurate picture possible. See also: Current yield.

aftertax yield

The rate of return on an investment after taxes have been calculated and subtracted. Aftertax yield, as opposed to pretax yield, is generally a preferred basis for comparing investment alternatives.
Case Study Utilizing aftertax rather than pretax yield to evaluate investments is a universal rule that applies to stocks, bonds, real estate, and mutual funds. In 2001 the Securities and Exchange Commission adopted a rule requiring that mutual funds disclose in their prospectuses aftertax returns based on stipulated formulas. The SEC order also required certain funds to include standardized aftertax yields in advertisements and other sales materials. The order was prompted by the belief that many investors lack a clear understanding of the impact of taxes on their mutual fund investments. Mutual funds regularly tooted their horns regarding their pretax returns, but SEC studies indicated substantial differences existed in the extent to which these returns were taxed. The tax consequences of distributions are especially puzzling to many mutual fund shareholders who are taxed on distributions based on realized gains from which they frequently did not benefit. To provide investors with more accurate information, the SEC requires that mutual funds present aftertax returns in two ways: on fund distributions only, which would apply to investors who continued to hold their mutual fund shares, and on fund distributions and a redemption of fund shares, which would apply to investors who liquidated their mutual fund shares. In each case aftertax returns are presented as if the shareholder is in the highest applicable federal income tax rate. Pretax and aftertax returns are presented using a standard format.
References in periodicals archive ?
While we are unlikely to see significant capital appreciation from municipal bonds, their after-tax yields are attractive and munis remain a solid source of income.
In light of that, investors should: (1) review their portfolios for long-term capital gains that are best realized before tax rates go up; (2) recalculate after-tax yields on corporate and municipal bonds and restructure their portfolios accordingly; (3) reconsider investment strategies, such as Master Limited Partnerships, that postpone the realization of ordinary income.
The new IRS rule undermines that decades-long policy by, in effect, lowering the after-tax yields affected depositors can expect to earn from U.
An investment in tax-exempt bonds will lose appeal as the after-tax yields on taxable investments increase.
Investment in tax exempt bonds will be much less attractive as after-tax yields on taxable investments increase.
Hein and Mercer also show empirically that, consistent with their argument, a sizable proportion of outstanding TIPS have higher expected after-tax yields than their conventional Treasury counterparts.
Bolton says that investors who hold bonds in a taxable account have "no choice" but to hold municipal issues because their tax-exempt yields can be higher than the after-tax yields from taxable bonds.
We look to the capital markets, especially the tax-exempt bond market, for a portfolio which might, after adjusting for all risk, produce higher after-tax yields and thus have a true tax advantage over a portfolio of Treasury securities.
This tax-exempt investment strategy targets after-tax yields of 4.
This allows investors to earn attractive after-tax yields because the qualifying dividend income is taxed at the same rate as long-term capital gains.
In addition, investor corporations subject to the AMT may want to consider divesting these public utility preferred shares in favor of investing in securities that produce higher after-tax yields.
Municipal and real estate investment trust (REIT) closed-end funds have enjoyed increased popularity because of their ability to generate relatively high after-tax yields and predictable cash flows, respectively.