Tax-managed investing: When you find yourself in a hole, stop digging.
Too many taxable investors don't think taxes are a problem. They don't know how much taxes are really costing them and they don't know how to transition to a tax-managed approach.
You have to start somewhere. When you find yourself in a hole, stop digging. Think about it this way: if you have a million dollar portfolio with a 10% capital gain distribution, that's $100,000 in taxable money. If you apply a 20% tax rate, that's a $20,000 tax hit every year. But with a tax-managed portfolio from Russell Investments, the same size portfolio could have a low capital gain distribution. Maybe even zero. That could mean the IRS getting nothing and you getting to keep your money.
So take that first step. Stop reinvesting your gain distributions back into the portfolio creating your tax problems. Instead consider using that income stream to fund a Russell Investments tax-managed portfolio. Because it's not what you earn, it's what you get to keep.
When that much money is at stake, you better pay attention to taxes. Nice work buddy!
Tax drag can hold you back in up and down markets
Every year in February investors receive their 1099 tax forms in the mail. Congrats! You have taxes due.
When markets are up we tend to be okay with having to pay the tax man something. But when markets are down, "Oh no. Why should I pay taxes when I'm losing money?" is what most of us would say.
Let's see what actually happens. This chart shows you U.S. Equity Market return for each year going back to 2001. This chart also shows you the average mutual fund capital gain distribution for each year. My question to you: How many times do you see the numbers represented with the red line hit zero? Never.
Whether the market is up or the market is down, capital gains are reality for investors. Just like individual portfolios when stocks with gains are sold, mutual funds are required to pay out to shareholders their net realized gains each fiscal year. Even in flat or down years. For most investors this distribution is automatically reinvested back into the fund, but in the eyes of our friends at the IRS a distribution is a distribution is a distribution. Taxes are due.
You can do better. Investors don't have to accept this level of tax costs. Russell Investments actively manages taxes throughout the year to reduce the impact of taxes. It's not what you make. It's what you get to keep that matters.
Let us help you keep more of what you make. Visit our website to learn how tax managed investing may help investors keep more of what they make.