Much as we may dislike them, taxes are a necessary part of civic life. The good news is that paying taxes means you earned something in the first place.
When it comes to investing, however, I encourage people to minimize their taxes, because then you can put more of your money to work building a financially secure future.
One approach is to select tax-efficient investment vehicles. Index mutual funds and exchange-traded funds, for example, generally have less portfolio turnover than their actively managed peers, meaning they generate fewer capital-gains distributions.
Another strategy is tax-loss harvesting. Whenever you sell investments for a profit, look for an underperforming investment in your portfolio you might sell at a loss. Doing so can offset some of the taxes you would otherwise owe on your gains.
At its essence, minimizing taxes is a matter of thoughtful planning. Have you considered what steps you can take to reduce your tax bill, both now and in the future? If not, it might be time to consult your financial planner or tax advisor. After all, it’s not what you make but what you keep that counts.
Charles R. Schwab
Founder & Chairman