30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Part VIII. Invest in Your Taxable Account

My colleague russ kinnel once observed that most people could much more readily tell you how much they pay for cable TV each year than they could estimate what they pay in investment management fees, even though the latter bill could be several times as much as the former.

I would say the same thing about investment-related taxes. It's not that investors are dumb or that they knowingly choose to ignore costs that can add up to thousands of dollars a year. Rather, it's that most investors don't write a check for investment management expenses or investment-related taxes. That means that they never see, in dollars and cents, exactly how much they're paying. Investment management expenses are often subtracted directly from the investor's account. And while you do write a check if you owe the IRS, the taxes you pay on your investments get lumped together with all of the other taxes that you're on the hook for in a given year. Because those costs are never clearly depicted, most investors tend not to be too attuned to them.

That's a shame, because these costs are fairly easy to control if you put your mind to it. And controlling them can have a meaningful impact on your bottom-line return.

Limiting the effect of taxes on your investment return is the focus of this section. To the extent that you hold investments in your taxable accounts—and you'll have to if you've maxed out your tax-sheltered investments and/or need ready access to your cash—you'll ...