Why investors of all income levels can benefit from a tax-efficient approach


Should the average investor think about how to make their portfolio more tax-efficient? Investing experts Tony Giordano of Vanguard Personal Advisor Services and Joel Dickson of Vanguard Investment Strategy Group say investors of all income levels can benefit from taking a tax-efficient approach to their portfolio.

Other highlights from this webcast:

Notes:
All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

It is possible that funds will not meet their objective of being tax-efficient.

© 2016 The Vanguard Group, Inc. All rights reserved.



TRANSCRIPT

Emily Farrell: We have one of our first live questions I’d love to get to. And Wanda asks, “Is tax-efficient investing just for people with a large portfolio?” So I think that’s a good level-set in terms of does it matter what your financial portfolio looks like in terms of do you need to think about this regardless?

Tony Giordano: Yes, I would say absolutely not. I mean, I think tax-efficient investing is appropriate for any investor, whether you’ve got $1,000, whether you’ve got $100,000, or you’ve got $1,000,000, tax-efficient investing is going to benefit any investor at any level.

Emily Farrell: And as we talked about before, and in whatever account that you do invest in, whatever type of account.

Joel Dickson: Yes, and actually, I’d share a story here that, you know, this happened probably about 15 years ago when I was talking on the phone to some clients. And it really highlights this effect that you need to think, again, about what is the approach to maximize your after-tax return. And, again, to Tony’s point, that goes across the board regardless of your income, your wealth, and so forth. I was talking with a client who called in and she was worried about the income in her portfolio. And after just a few questions, I figured out this was an 85-year-old woman living in the state of New Jersey who had basically $30,000 to her name and her Social Security that she was getting. That entire $30,000 was in a tax-exempt muni bond fund. And when I inquired about why that investment, “Well, I don’t want to pay taxes.” Well, the fact of the matter is, given her financial situation, she wouldn’t have paid taxes on a higher taxable bond fund and yet would have had more after-tax return. So sometimes, even for that person, low wealth, really no income other than Social Security and some investment income off of this portfolio, it still makes a big difference. And she would have been, in that case, much better off having been in a more, what we might think of as, tax-inefficient vehicle, but in her tax situation, that would have led to more wealth and more income.

Important information All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss. This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation. It is possible that funds will not meet their objective of being tax-efficient. © 2016 The Vanguard Group, Inc. All rights reserved.