When building portfolios, many investors focus on risk and fees, but that’s only part of the picture. What about taxes? They can drag down investment returns and remember, 'It’s not what you make. It’s what you keep'.
Investors are increasingly focused on structuring their accounts for what really matters, after-tax returns – returns they can actually spend.
This is where BlackRock’s Fill First strategy can help you keep more of what you earn. Here’s how it works - think about filling buckets with pitchers of water. The buckets are your accounts – your tax-deferred IRA and your traditional taxable account. And the pitchers are your assets – bonds, equity ETFs and equity mutual funds.
So, how do you best fill the buckets?
Let’s start with bonds.
Now, on to stocks.
To diversify, investors can choose from ETFs or active mutual funds or both, depending on your needs – but where you put each matters.
ETFs tend to distribute capital gains far less frequently than active mutual funds, making them more tax efficient. Anchor your taxable accounts with ETFs to help minimize capital gains taxes.
Active mutual funds seek to outperform the market but trade a lot to do so. This leads to capital gains distributions for fund shareholders, which means taxes. Give your active managers their best chance to shine by overweighting them in your IRA.
Don’t bank on pre-tax returns. Get the full picture using the “fill first” framework to help optimize for after-tax returns and consider BlackRock for tax-smart investing strategies.
