There are some misconceptions about tax-efficient investing, however. For one, some believe that you should avoid buying the stocks of companies that pay dividends, which will then be taxed. It’s not that simple, Peters says.
Another misconception is that investors should never sell their holdings, thereby avoiding paying a sizable capital gains tax. Peters says investors should not let “tax phobia” interfere with smart investment decisions.
“The selling decision can be very difficult, particularly if you have a sizable unrealized capital gain,” Peters said. For a realistic tax-efficient investment strategy to make sense, he said, gains should be minimal but not zero.