After TaxTax Playbook

Tax Playbook · Investment tax wins

Buy total return, not yield

A bond fund is a faucet: every payout is taxed that same year at ordinary income rates, even though about 90% of it just gets reinvested anyway. Growth that sits in the price is a well: nothing is taxed until YOU decide to sell, and then at the lower long-term capital-gains rate — only on what you draw. That is why an investor who needs $40,000 a year from a $1 million portfolio does not need a portfolio that yields 4%. They need a portfolio that produces a 4% total return. The honest catch: growth can fall in a bad year, so keep enough safe cash aside that you never have to draw from a well in a drought.

Good for: For retirees and other taxable investors living off what they saved.

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Educational summary, not tax advice. Limits and rules change — confirm current law with your tax adviser.