Generally, index funds and total-market index funds are tax-efficient due to their inherent low turnover. Moreover, some ETFs can also be tax efficient because they can exchange securities in kind (which avoids tax liability) instead of selling. But, what other metrics can be tracked to help us determine a funds tax efficiency? Here are some interesting ones you should be following:

• after tax returns vs. “tax efficiency;”

• the tax cost ratio (a measure of a funds annual return reduced by taxes paid on distributions); and/or

• the potential capital gains exposure of a fund (a metric that measures all the gains yet to be distributed by the fund)

By paying attention to not only a funds turnover ratio, but also the funds after tax returns, the tax cost ratio, and its potential capital gains exposure, you will help better ensure its true tax-efficiency. Clink on the link above to learn more!