A subtle way our investment approach saves taxes
April 15th is behind us, but at Moisand Fitzgerald Tamayo tax planning is a year-round affair, and for good reason.
Taxes are by far the biggest investment expense we face over our lifetimes. We pay our bills with after-tax, not pre-tax earnings. Despite its importance, managing investment taxes may be one of the most under-appreciated aspects of portfolio management.
Imagine twin brothers, Sam and Dave. Over the same period, each saves the same amounts of money on the exact same dates. When withdrawals are made, they are done on the same days for identical amounts. Both Sam & Dave earn the same pre-tax amount on their investments. Despite all being equal, if one of the brothers does a better job of managing his tax liabilities, he will have more money to spend or will be able to spend the same amount for longer.
Improving after-tax results can come from increasing pre-tax returns, but increasing pre-tax returns requires taking on more risks. Everyone has a limit to how much risk they can tolerate or absorb. A more reliable way to reduce portfolio taxes is through tax-efficiency. One of the ways this is done is by selecting investments in taxable accounts that generate proper returns but with less tax liabilities.
For example, a common source of portfolio taxation is capital gain distributions by traditional mutual funds and Exchange Traded Funds (ETF). Funds that are frequently changing their holdings or utilizing leverage in an effort to beat the market are not only taking a riskier approach, they also tend to generate more transactions that cause taxable distributions.
Morningstar reported that for 2025, the average distribution of short-term gains by traditional mutual funds invested in stocks in 22 categories[i] was .28% of the fund value and the average distribution of long-term gains was 6.45% of the fund’s value.
How much does tax efficiency matter? As of December 31, 2025, our firm managed $542,292,782 in taxable accounts. Applying the above percentages, those accounts would have generated more than $1.5 million in short-term gains and nearly $35 million of long-term capital gains distributions.
However, we don’t invest in an average way. Due to the intelligent selection of the investments, the actual gain distributions for 2025 on our clients’ accounts were more than 98% less than the average, a mere $28,943 short-term and $519,472 long-term.
We do not force new clients to sell everything to come work with us because that is often not in their best interest.
We do not force new clients to sell everything to come work with us because that is often not in their best interest. If we excluded holdings our clients bought before working with us that we haven’t recommended selling due to even bigger tax consequences, the reduction from the average would be even greater.
Our use of tax-efficient investments saved our clients’ taxes on almost $1.5 million taxed at ordinary rates and more than $34 million taxed at long-term capital gain rates. Plus, as clients can see from their reports, our tax efficiency techniques did not hinder pre-tax returns.
Again, those are just averages for 2025. The difference between the portfolio taxation on the average fund and the tax efficient funds we use will vary year to year, but due to how the funds are constructed and run, it is reasonable to expect meaningful differences in most years.
By law, funds must distribute gains to their owners no less than annually, whether the owner wants to pay taxes on them or not. By minimizing capital gains distributions, our clients have more control over their tax bills. They will largely pay capital gains taxes only to the extent they wish to and only when they decide to sell their fund shares, not when distributions are thrust upon them.
While few people seem to enjoy paying taxes on portfolio earnings, taxes should be looked at as one outcome of a successful investment experience rather than something to dread and avoid at all costs. A measured approach in sync with a good financial plan is more likely to get good results than investing without coordination with a financial plan or myopically trying to lower a given year’s tax bill.
[i] Data sourced from Morningstar on January 9, 2026. Averages shown are asset-weighted at the fund level using assets as of December 31, 2025. Funds included are US-domiciled, USD-denominated open-end equity funds in the following Morningstar categories: Large Blend, Large Growth, Large Value, Mid-Cap Value, Small Blend, Small Growth, Small Value, Miscellaneous Region, Pacific/Asia ex-Japan Stock, Real Estate, Global Large-Stock Blend, Global Small/Mid Stock, Diversified Emerging Markets, Europe Stock, Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Blend, Foreign Small/Mid Growth, Foreign Small/Mid Value, Global Real Estate, Japan Stock.
In The News
Dan Moisand,CFP® continues to write for Florida Today and MarketWatch, which are sometimes syndicated to other sites such as MSN & YahooFinance. (Some links may require a subscription to view.)
Do I earn too much to contribute to an IRA? – MarketWatch, MSN
Here’s what potential investors should consider about a SpaceX IPO – Florida Today
Tommy Lucas, CFP®, EA remains a regular source for CNBC stories.
Moisand Fitzgerald Tamayo, LLC named to list of America’s Best Financial Advisory Firms by USA Today, again
For the third consecutive year, USA Today has named Moisand Fitzgerald Tamayo, LLC (MFT) as one of the Best Financial Advisory Firms in the United States in 2026. The publication teamed with research firm Statista, whose methodology examined growth and recommendations from peers and clients. We are no stranger to top firm lists, having been so recognized at various times by Forbes, Financial Advisor, the Financial Times, Advisor HQ, and RIA Biz, most recently when CNBC named the firm to its list of the top 100 financial advisors in the U.S. These and other accolades make MFT one of the most decorated truly independent financial advisor firms in the U.S.
MFT named a “Best Place to Work” for the 8th time
Moisand Fitzgerald Tamayo has been named a best place to work for the 8th time. Investment News placed us on their list of the best places to work for financial advisors in the U.S. for the sixth time since 2019. This recognition comes on top of the news we revealed in January that for the second straight year, Financial Planning magazine named us one of 2025’s “60 Best RIAs to Work for.” Get all the detail in the post MFT named a “Best Place to Work” for the 8th time.
Notable
Limitations of awards & recognitions: Moisand Fitzgerald Tamayo, LLC does not participate in any program requiring a fee to participate or receive an award. Neither rankings and/or recognition by unaffiliated rating services, publications, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Moisand Fitzgerald Tamayo, LLC is engaged to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by participating advisers. No ranking or recognition should be construed as a current or past endorsement of Moisand Fitzgerald Tamayo, LLC by any of its clients. ANY QUESTIONS: Moisand Fitzgerald Tamayo, LLC’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including providing the criteria used for any reflected ranking. (Additional important disclosures)