Further to my previous discussion of the advantage of low-cost mutual funds:
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 previous 10 years. Minimizing the impact of taxes should therefore be an investor priority in fund selection.
One way to minimize a tax bill is to invest in tax-efficient funds that distribute little capital gains. Exchange traded funds, or ETFs, can help lower distributions. (See the Earl J Weinreb NewsHole® comments.)
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