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Tax Efficiency

By MidAmerica Financial Resources




it means, why it counts.


Provided by MidAmerica Financial Resources


A little phrase that may mean a big difference. When

you read about investing and other financial topics, you occasionally see the

phrase “tax efficiency” or a reference to a “tax-sensitive” way of investing.

What does that really mean?


The after-tax return vs. the pre-tax return.

Everyone wants their investment portfolio to perform well. But it is your

after-tax return that really matters. If your portfolio earns you double-digit

returns, those returns really aren’t so great if you end up losing 20% or 30%

of them to taxes. In periods when the return on your investments is low, tax

efficiency takes on even greater importance.


Tax-sensitive tactics. Some methods have

emerged that are designed to improve after-tax returns. Money managers commonly

consider these strategies when determining whether assets should be bought or



Holding onto assets. One possible method

for realizing greater tax efficiency is simply to minimize buying and selling

to reduce capital gains taxes. The idea is to pursue long-term gains, instead

of seeking short-term gains through a series of steady transactions.


Tax-loss harvesting. This means selling

certain securities at a loss to counterbalance capital gains. In this scenario,

the capital losses you incur are applied against your capital gains to lower

your personal tax liability. Basically, you’re making lemonade out of the

lemons in your portfolio.


Assigning investments selectively to tax-deferred and taxable

accounts. Here’s a rather basic tactic intended to work

over the long run: tax-efficient investments are placed in taxable accounts,

and less tax-efficient investments are held in tax-advantaged accounts. Of

course, if you have 100% of your investment money in tax-deferred accounts,

then this isn’t a consideration.


How tax-efficient is your portfolio? It’s an

excellent question, one you should consider. But this brief article shouldn’t

be interpreted as tax or investment advice. If you’d like to find out more

about tax-sensitive ways to invest, be sure to talk with a qualified financial

advisor who can help you explore your options today. What you learn could be



MidAmerica Financial

Resources may be reached at 618.548.4777 or greg.malan@natplan.com.



This material was prepared by MarketingLibrary.Net Inc., and does

not necessarily represent the views of the presenting party, nor their

affiliates. This information has been derived from sources believed to be

accurate. Please note - investing involves risk, and past performance is no

guarantee of future results. The publisher is not engaged in rendering legal,

accounting or other professional services. If assistance is needed, the reader

is advised to engage the services of a competent professional. This information

should not be construed as investment, tax or legal advice and may not be

relied on for the purpose of avoiding any Federal tax penalty. This is neither

a solicitation nor recommendation to purchase or sell any investment or

insurance product or service, and should not be relied upon as such. All

indices are unmanaged and are not illustrative of any particular investment.



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