Tax-Efficient Investments And Trading Strategies

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It’s crucial to know how an investment is going to be taxed because ideally you’d want more tax-efficient investments in a taxable account.

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Conversely, you may want to hold investments that can have a greater tax impact in tax-deferred and tax-exempt accounts, where investments can grow tax free.

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Tax-Efficient Investments And Trading Strategies

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ETFs

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Treasury bonds

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Municipal bonds

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Stocks that do not pay dividends

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Tax-Efficient Investments And Trading Strategies

It’s crucial to know how an investment is going to be taxed because ideally you’d want more tax-efficient investments in a taxable account.

Conversely, you may want to hold investments that can have a greater tax impact in tax-deferred and tax-exempt accounts, where investments can grow tax free.

Tax-Efficient Investments And Trading Strategies

ETFs

Most ETFs are passive and track an index, and thus tend to be more tax efficient than their actively managed counterparts

Treasury bonds

Investors will not pay state or local taxes on interest earned via Treasury bonds.

Municipal bonds

Interest is generally exempt from federal taxes, and state or local taxes if the investor lives within that municipality.

Stocks that do not pay dividends

Assuming you’ve held it longer than a year, selling a non-dividend paying stock is likely lower than the tax you’d pay on ordinary dividends.

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