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Step 7: Silent Partners

solutIons tAx-mAnAged funds Index funds are tax efficient by their very nature. However, some indexes can be further tax-managed to save you even more in taxes. These tax-managed index funds are very efficient in offsetting realized gains with realized losses, deferring the realization of net capital gains and minimizing the receipt of dividend income. The result is maximized unrealized capital gains that have not yet been realized for tax purposes. Taxes are not paid until a future date when withdrawals are made and the gains then become realized. The benefit is that the unrealized capital gains (profits) remain a growing part of the net asset value of a fund rather than being distributed to the investor. Exchange-traded funds (ETFs) are also a tax efficient way to invest in an index.

mInImIze the sIlent pArtners

Index funds are an excellent way to minimize the effect of silent partners. Dimensional Fund Advisors and Vanguard are leading providers of tax-managed index funds with funds in many equity categories. While fees, transaction costs and taxes eat up active investors’ returns, index fund investors maximize asset growth by avoiding the major impacts of costs and taxes. No investment is completely free from silent partners, but passive investors use index funds, tax-managed index funds and ETFs to retain as much money as possible.

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...