Are you a tax-aware investor?

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Understanding why tax efficiency is critical for investor success.

Tax friction refers to the amount of annual return that is lost to taxes. Investors can seek to
mitigate this wealth erosion through tax-aware investing, including:


  • Asset location. Think about the type of account holding your assets. Investments with large potential tax footprints may be best held in qualified, tax-advantaged accounts (e.g., IRA).


  • Asset allocation. Some asset classes are inherently more tax-efficient than others (e.g., municipal bonds, equity strategies with low turnover).


  • Investment vehicle. Tax-friendly investment vehicles such as separately managed accounts (SMAs) and exchange-traded funds (ETFs) may offer clients greater control over their tax experience.


Chart showing that after 20 years an investment of $1 million would yield $1,989,789 with a portfolio that has 150 bps of tax friction, versus $2,411,714 with a portfolio that has 50 bps of tax friction.


Consult with your financial advisor to identify the steps you can take today to help build your wealth in the years to come.


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