Lesson 35 Taxes Matter
Taxes are the biggest cost investors face. They are a dead drag on performance. Every cent that marches off the field to the IRS is not there for you to use for retirement. It’s never coming back! Obviously, it’s only prudent to manage taxes.
But, remember, minimizing taxes is not the objective; maximizing after-tax returns is the objective. Turnover in an investment portfolio is the worst offender in generating taxes. Each time a stock is sold, the taxable gain is distributed to the shareholders. With some actively managed funds turning over more than 200%, any gains would be taxed at the highest marginal tax rate of the holder.
Index funds are low-turnover by comparison, and therefore naturally tax-efficient. Even ...
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