Numerous studies have proven that investment cost is one of the most important factors of investment performance. Mutual funds with high expenses usually result in poorer market performance. Select funds with the lowest management fees.
Costs also include fund brokerage charges not included in your fund's expense ratio. The cost of buying and selling securities is passed on to you. Therefore, it's advisable to stick with mutual funds that have low transaction volume.
A 2008 Lipper study discovered that buy-and-hold investors with mutual funds in taxable accounts lost to taxes between 1.3% to 2.2% of their annual returns over the past 10 years. Minimizing the impact of taxes should therefore be an investor priority.
One way to minimize a tax bill is to invest in tax-efficient investments that distribute little capital gains. Exchange traded funds, or ETFs, can help lower tax distributions.
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