What is tax drag, and how does PortfolioPilot help reduce it?
Tax drag is the reduction in your portfolio's net returns caused by taxes paid on dividends, interest, and capital gains each year. Over decades of compounding, it can significantly reduce your final wealth.
Common sources of tax drag:
- Holding high-dividend or high-turnover funds in taxable accounts
- Realizing short-term capital gains instead of long-term gains
- Not harvesting losses to offset gains
How PortfolioPilot helps:
- Asset location optimization — Recommendations help you place tax-inefficient assets (bonds, REITs, high-dividend funds) in tax-advantaged accounts and tax-efficient assets (growth ETFs) in taxable accounts.
- Continuous tax-loss harvesting — PortfolioPilot scans your taxable accounts year-round for harvesting opportunities, not just at year-end.
- Tax impact on recommendations — every recommendation in Recommendations shows the estimated tax cost of making the trade, so you can weigh the benefit vs. the tax hit.
