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Morningstar analyst Cara Esser on the strategies to reduce taxes on your investments.
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It may be Washington's birthday today but you can still be looking to give yourself a little present that will save you Benjamin's one analyst has a fund picking strategy.
That could put more returns into your pocket and out of the hands of Uncle Sam.
We want to bring in Kara -- -- Morningstar who's.
Us now live from Chicago to talk about the names of the funds that help you do just that does this goes carrot to the very heart of let's not less experienced investors but investors who say 01 -- good fund.
They don't even realize that their profits that there returns are getting sucked up by all kinds of taxes correct.
That's exactly right a lot of investors don't pay attention to tax adjusted returns and if you're investing outside of attacks -- attacks tax advantaged account.
Like an IRA or -- 401K you really do need to pay attention to what's happening to.
The taxes that you're paying on distributions from these funds now let's talk about how you spot first the holes the money holes -- get money pits but where the leaks are happening.
Do you look at certain funds and and their tax rates is it very obvious.
Sure so there's actually out of a group of tax advantage mutual funds so they say it right in the name tax advantaged something something in the name of mutual funds so there's a bunch of mutual funds.
And closed end funds that used tax advantage strategies to their benefit and to the benefit of investors.
And there are a lot of close end funds in particular that -- play this strategy because.
Many investors turned to close end funds for the income generation potential and you overlay attacks advantage strategy and it's really powerful for after tax returns.
Okay we're looking at the Eaton Vance tax advantaged global fund their a couple of them here there's -- there's -- global in the they're seeing regular so there's ET ON ET -- they've done beautifully since about three quarters of the year ago.
Talk about this one what's in them and what qualifies so that -- only taxed at what 15% vs higher percentages for other dividend paying stocks.
So these funds in particular focus on qualified dividends -- qualified dividends have to meet a specific criteria.
And that has to do with the firm and where it's located at paying a dividend and also with how long the holding period of the underlying security is.
So these funds have manners that are very experienced and finding firms that can pay qualified dividends and making -- the holding period is long enough to get those dividends.
And these funds also do.
On some different things the dividend capture on on foreign investment names and they also do a lot of tax last harvesting so they don't just -- need any capital gains.
And -- they attempt to only distribute qualified dividend.
Right so folks are you are you listening to your going to only be tax dependent on the metrics we just showed you are probably fifteen to 20% when it could be so much -- -- some of your other funds.
How do you pick these funds you talk about the five so called -- of fund -- And Morningstar we rate both mutual funds and closed end funds based on what we call -- five p.s are the five pillars so.
The first key is people are looking at the management team what's the breath of experience that they have running a particular strategy.
And we also look at that investment process so what are they doing what's the underlying strategy how are they meeting the investment goal in the case of the tax -- managed strategies that.
How are they invest into you know tax advantaged.
Income for the investors.
The third.
Have a long term incentive plans for the managers that are good for shareholders.
We also look at past performance and fees so we -- make -- -- -- a competitive force in early invested strategy so for the John Hancock tax advantaged dividend fund in both the global and the regular one what are the fees there.
You know I don't know that off hand but they're all very competitive that HTD John Hancock fund is one of our favorites in this space.
Get it took a big dive in December anything to worry about there.
I don't think so I think people were concerned about -- -- -- -- what was gonna happen air so I think I think that was just temporary market debt but I don't think that investors have anything to worry about there.
I -- our viewers to know that you have earmarked five.
Actually it's 99 funds and we've put them up on our FaceBook dot com slash -- claimant page.
So that you -- these tax advantaged dividend funds so that you know.
You won't be taxed away with all of the profits of what you've been making Kara thank you for educating us in the fundamentals of funds thank you so much.
Thank you so much -- answer is a Morningstar analyst talking to us live on this president's stay in and yeah.
