Tax Trap

Taxes can be a silent drain on your investment returns over time, potentially reducing your portfolio performance by up to 2% per year, according to a study by Morningstar, which looked at pre- and after-tax investment returns from 1926 to 2023. Even if you haven’t sold a mutual fund or haven’t seen gains in your portfolio, you might still be on the hook for capital gains taxes—a tax obligation that can be largely out of your control. This effect is often referred to as the “mutual fund tax trap,” and…

Tax efficiency is essential for investors, and failure to account for it can be detrimental to your portfolio’s performance. In a world where every percentage point counts, being caught unaware by unexpected tax obligations can set you back considerably. If you’re investing in mutual funds, it’s crucial to be aware of the potential for a nasty surprise: the mutual fund tax trap. The Importance of Tax Awareness A comprehensive Morningstar study spanning the years 1926 to 2021 showcased that ignoring taxes in your investment decisions could slash your portfolio returns…