Why Taxes and Leverage Are the Easiest Way to Beat the Market on After-Tax Returns
Most investors focus entirely on chasing higher returns in the stock market, but the smartest wealth builders understand that after-tax returns matter most. At Cool Wealth Management in Phoenix, Arizona, we help business owners and professionals grow their wealth by using tax strategy and leverage, two of the most powerful, controllable tools available. You don’t have to take on extra market risk to outperform. You simply need to keep more of what you earn and make your capital work harder for you.
The Real Game Is After-Tax, Not Pre-Tax
A 7% return doesn’t mean much if you lose 2% of it to taxes every year. The difference between pre-tax and after-tax returns compounds dramatically over time. For example, a $1 million portfolio earning 7% before taxes grows to about $1.97 million after 10 years. That same portfolio taxed at 25% on gains grows to only $1.74 million, a $230,000 difference without changing the investment mix.
Tax strategy is the most direct way to improve returns without adding risk. By using the right entity structure, deferral plans, and deductions, you can legally shift income and control when and how much you pay in taxes.
How Leverage Enhances Wealth Creation
Leverage isn’t just for real estate investors. Business owners, high earners, and even conservative investors can use strategic debt to magnify returns. When used responsibly, leverage lets you control more assets with the same amount of equity, amplifying growth without needing the market to perform miracles.
For example, if your after-tax cost of borrowing is 5% but you can reasonably earn 8%, that 3% spread can compound into serious long-term wealth. The key is discipline: using leverage for productive assets, not consumption.
Leverage also frees up capital for diversification. A business owner might use low-interest financing to fund growth while keeping liquidity for investing or retirement contributions. Used correctly, it becomes a multiplier, not a risk amplifier.
Combining Tax Strategy and Leverage
The real benefit happens when taxes and leverage work together. A business structured as an S Corporation, for instance, may reduce self-employment taxes while creating opportunities for deductible retirement contributions. Add strategic borrowing at low rates to acquire appreciating assets or expand operations, and you’re compounding on money that would otherwise have gone to the IRS.
Over time, the difference between someone who plans around after-tax returns and someone who doesn’t becomes enormous. Two people with identical portfolios can end up with vastly different outcomes simply because one paid less in taxes and made capital decisions more efficiently.
Beating the Market Without Beating the Market
Most investors try to outperform through timing or stock selection, which is extremely difficult long-term. Optimizing taxes and leverage is a way to improve returns quietly and sustainably. You’re not taking more risk; you’re improving the math.
We see it every day with our clients: those who think strategically about tax deferral, entity choice, and smart debt outperform peers with higher nominal returns but poor efficiency.
The Bottom Line
You don’t need to outsmart Wall Street to grow faster than the market. You need to be intentional with how you structure income, manage taxes, and apply leverage. That’s where true financial strategy begins and where wealth compounds most predictably.
At Cool Wealth Management, we help business owners and high-income earners across Arizona design financial plans that maximize after-tax returns using proven tax strategies and leverage principles. The goal isn’t just to grow your money, it’s to keep more of it.
