The simple and straightforward answer is NO. And to argue this, we will explain the calculations made by the platform below. InbestMe and that they have published in fundssociety.com. At Cluster Family Office we often see the reluctance of most investors to sell their current portfolios of funds or shares, in order to continue deferring the withholdings that would be applied to the capital gains accumulated in them over the years. On the face of it, this seems like a good decision, but it is not unless the portfolio's returns are at least minimally improvable. And that is the first surprise for the majority of investors hypnotised by the mediocrity of the funds sold by the big international fund managers in Spain, that there is life beyond the open architecture sales catalogues.
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It is true that in Spain there is the possibility of transferring assets from one fund to another while maintaining tax deferral, with the corresponding registration with the CNMV, a minimum volume of unit-holders and that they are considered by the regulator as transferable. The disadvantage is that, as we have already explained in other articles such as «....«Investment Funds: There are still classes«The universe of investment funds registered in Spain is very limited compared to those existing worldwide. As limited as 10%, which means that because of the desire to take advantage of this tax deferral to infinity and beyond, investors are locked into an investment universe that ignores the 90% of existing funds worldwide. (The Spanish banks refuse to underwrite funds beyond their sales catalogue, for which we have also explained the solution in «...").«The advantages of investing from Luxembourg«). Let us now look at the example figures calculated by InbestMe:
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For example, with an average annual return of 3.4% (return over the last 25 years), the difference in return between deferring capital gains to the end or taxing them every year is only one 4.2% cumulative over 20 years, or, in other words, a 0.21% APR. That is, if an investor is able to improve the performance of his portfolio by at least 0.21% per annum, by replacing mediocre funds with funds that consistently outperform their respective benchmarks in a clear and sustained manner, You should not mind the fact that the new funds are not transferable and you will have to pay tax on the capital gains on an annual basis. Here it is worth remembering that the tax cost of unrealised capital gains is money that is not ours but that we have borrowed from the Treasury and that has to be paid back sooner or later. Therefore, using the money we owe the Treasury to make a profit loses all sense if we use it in a mediocre way, condemning the rest of the money that is ours to mediocrity.
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In the example above, improving returns by 0.21% per annum by being able to invest in 100% of existing funds and not just 10%, is not only perfectly possible but practically a must. In fact, the sooner you trade your bland investments for more powerful ones, the sooner you will recoup the withholding taxes on the sales of your mediocre portfolio. More importantly, once the sold portfolio is taxed, in addition to having the freedom to invest at a higher yield in any fund in the world, you will also be able to defer taxation forever if you have a Luxembourgish vehicle 300,000, even if you change funds or investments in the future and they are not transferable., as we have explained on other occasions.
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So why so much fear of taxing latent capital gains if they are easily recoverable and surmountable with a portfolio of good funds that consistently outperform their indices? This is where Spanish banks come into play, of course. Firstly, no bank is going to propose to its client that he liquidate the funds it has sold him and take the money to another (Luxembourgish) entity in order to have an investment vehicle in which the best funds on the planet can fit - and be deferred indefinitely. And secondly, to avoid temptation, they warn their clients vehemently of the tax «axe» that they would get if they liquidate their positions. In this way they keep the investor captive in the institution, with mediocre portfolios that are perpetuated over time, with an enormous opportunity cost.
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Certainly, the investor who has the capacity to invest beyond the 10% of funds registered in Spain to be marketed by Spanish banks would do well to seek to increase the quality of his portfolio and not be intimidated by his banker and his tax simulations. After all, just a few tenths of a point more return from higher quality funds will more than compensate you for the compound interest of the tax deferral. In other words, you would do well to stop deferring in order to invest better and return to defer indefinitely with a much stronger portfolio. Not doing so is bread for today and hunger for tomorrow, i.e. being trapped sine die in the mediocrity of the funds sold to you by the bank on the corner, very happy, of course, to be reinvesting. mediocrely the taxes owed to the tax authorities.