Trading Behavior

Four types of equity investors:

trader	trades frequently and recognizes all portfolio returns in the form of annually taxed short term gains. This equity management style may subject investment returns to tax burdens similar to those applied to interest income thereby eroding possible tax efficiencies associated with equities (i.e., deferred capital gains).
active investor	trades less frequently so that gains are longer term in nature, may receive more favorable tax treatment.
passive investor	passively buys and holds stock.
exempt investor	not only buys and holds stocks, but he never pays capital gains tax.

Tax Regimes

Income Type:	Ordinary	Interest	Dividends	Capital gains
Common Progressive Regime (most common regime observed)	Progressive	Favorable	Favorable	Favorable
Heavy Dividend Tax Regime	Progressive	Favorable	Ordinary	Favorable
Heavy Capital Gain Tax Regime	Progressive	Favorable	Favorable	Ordinary
Heavy Interest Tax Regime	Progressive	Ordinary	Favorable	Favorable
Light Capital Gain Tax Regime (second most common regime)	Progressive	Ordinary	Ordinary	Favorable
Flat and Light Regime	Flat	Favorable	Favorable	Favorable
Flat and Heavy Regime	Flat	Favorable	Ordinary	Ordinary

“Ordinary” can be paraphrased by “Progressive.”

Taxes

Tax structures (the specifics of how governments collect taxes) are determined by national, regional, and local jurisdictions in order to meet governmental funding needs. Major sources of government tax revenue include:

• Taxes on income. These taxes apply to individuals, corporations, and often other types of legal entities. For individuals, income types can include salaries, interest, dividends, realized capital gains, and unrealized capital gains, among others. Income tax structure refers to how and when different types of income are taxed.
• Wealth-based taxes. These include taxes on the holding of certain types of property (e.g., real estate) and taxes on the transfer of wealth (e.g., taxes on inheritance).
• Taxes on consumption. These include sales taxes (which are taxes collected in one step from the final consumer on the price of a good or service) and value-added taxes (which are collected in intermediate steps in the course of producing a good or service but borne ultimately by the final consumer).

Legal Systems

Legal Systems

			Reasoning	Developed
Civil Law	Europe, Japan, ...	Judges apply general, abstract rules or concepts to particular cases.	Deductive	legislative statutes or executive action
Common Law	US, UK, ...	Common law systems draw abstract rules from specific cases.	Inductive	decisions of the courts

IPS (Investment Policy Statement)

IPS (Investment Policy Statement)

			Description
Return Objectives
Risk Tolerance			Ability Willingness
Portfolio Constraints			Liquidity; Time horizon; Taxes; Legal and regulatory environment; Unique circumstances.