While “tax season” may imply that there is an optimal time to think about your income taxes, the best
way to minimize your annual “pay-triotic duty” is to engage in year-round tax-wise investing, with
ongoing best practices in: Your personal tax-efficient habits, your fund managers’ tax-efficient habits,
your investment portfolio’s tax-efficient management and your advisers’ tax-efficient teamwork.
You and Your Investments
There are a number of personal habits you
can embrace that make for tax-efficient
investing. Here are a few to get you started.
Have a plan – and follow it. Investing
according to a plan, preferably in the form
of a written Investment Policy Statement,
makes everything else we’re about to
describe easier to accomplish. By clearly
defining and documenting what you plan
to achieve with your investments and how
you plan to achieve it, you and your financial team are best positioned to ignore the
inevitable, often tax-incurring distractions
along the way. A detailed investment plan
also serves as your reliable guide for
resolving any conflicting priorities when
balancing tax efficiency versus other con-
siderations within your overall wealth
management.
Avoid hyperactive trading. Bottom
line, the more trading you do in your taxable accounts, the more “opportunities”
you create to be taxed on the proceeds. The
fewer trades that are required to accomplish your investment plan, the better off
you’re likely to be when taxes come due.
(See how that [