Many investment strategies are not appropriate for investors seeking to maximize after-tax returns. High-turnover and tactical strategies that may liquidate a portfolio inefficiently generate short-term gains, and others invest in asset classes that may be less desirable to taxable investors. Tax-sensitive strategies were marketed to overcome these limitations, but tax-efficient investing is rarely properly implemented. Typically, these tax-sensitive portfolios are merely repackaged standard portfolios with municipal bonds substituted in—trading may be limited to once per year, but equity positions remain identical.
There’s room for improvement.