Maximize Your After Tax Returns

Maximize Your After Tax Returns



Maximize Your After-Tax Returns
If you​ want to​ minimize receiving taxable distributions from mutual fund investments,​ tax-efficient funds should be considered for your investment portfolio.
In tax-efficient investing,​ the​ focus is​ not on​ what you​ earn but what you​ are able to​ keep .​
The objective is​ to​ produce the​ best after-tax returns .​
Such mutual funds apply to​ investments outside of​ IRAs,​ 401(k)s and other tax-deferred accounts.
According to​ the​ global investment management firm T .​
Rowe Price,​ tax-efficient mutual funds are becoming more and more popular despite recent cuts in​ tax rates.
Nobody likes to​ think about taxes,​ after all .​
And investors who want to​ minimize taxes are forced to​ think about them constantly: They have to​ monitor their portfolio holdings,​ distributions and potentially extensive transaction records.
However,​ Don Peters,​ who manages several tax-efficient portfolios at​ T .​
Rowe Price,​ says tax-efficient investing means more than just avoiding taxes.
Successful tax-efficient investing is​ building and managing a​ portfolio of​ securities that you​ can hold for the​ long term and that can generate good long-term after-tax performance,​ he said.
There are some misconceptions about tax-efficient investing,​ however .​
For one,​ some believe that you​ should avoid buying the​ stocks of​ companies that pay dividends,​ which will then be taxed .​
It's not that simple,​ Peters says.
Another misconception is​ that investors should never sell their holdings,​ thereby avoiding paying a​ sizable capital gains tax .​
Peters says investors should not let tax phobia interfere with smart investment decisions.
The selling decision can be very difficult,​ particularly if​ you​ have a​ sizable unrealized capital gain,​ Peters said .​
For a​ realistic tax-efficient investment strategy to​ make sense,​ he said,​ gains should be minimal but not zero.




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