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Podcast Episode – Meir Statman
With the Recent Events in Ukraine, Should I Make Changes to My Portfolio?
Embracing the Evidence at Anheuser-Busch – Mid 1980s
529 Best Practices
Tag: vanguard research
Immitation is Flattery
“Bad news and ill omens can make the market appear riskier than many investors would prefer,” wrote Vanguard in their recently published lessons on their website. “But if you take the long view, things might not seem so bad.” We love that Vanguard, the second-largest mutual fund company on the planet, used our trademarked phrase. Obviously, we agree.
Taxes Matter—A Lot!
One thing is certain when it comes to investing, taxes make a big difference in after-tax returns.
A recent article in The Wall Street Journal, “Individual Stocks vs. Index Funds: The Next Frontier,” discussed direct indexing as an advanced technique to potentially save on capital gains taxes. Instead of owning a single investment representing a sector or asset class, direct indexing means buying the hundreds or thousands of stocks individually that make up that asset class. While it’s a useful technique to aggressively harvest tax losses, the complexity involved is likely too much for most investors.
Carolyn Geer with the WSJ quotes Fran Kinniry, investment strategist for the Vanguard Group, as saying that “most investors would be better off simply holding tax-efficient investments, such as broad-market index funds and municipal-bond funds, in taxable accounts, and holding tax-inefficient investments, such as taxable bonds, in 401(k)s and individual retirement accounts.”
At Hill Investment Group, we agree. Here are our three main strategies to help increase after-tax returns:
- Optimizing asset location (as previously mentioned here)
- Tax-loss harvesting
- Using low turnover investments and tax-managed funds
According to Vanguard research, the first category alone can add up to 0.75% in annual returns, depending on the mix of investments.