Build a Tax-Efficient Portfolio Without Sacrificing Returns

On this episode of The Dentist Money Show, Matt and Rabih explain why successful investing starts with maximizing after-tax wealth, not chasing the lowest tax bill. They explore the common myth that returns and taxes deserve equal focus and show how overprioritizing tax savings can actually limit long-term growth. Tune in to learn a smarter, sequencing-based approach to financial planning so you can build more wealth over time. If you’ve ever felt torn between growing your portfolio vs. minimizing taxes, this episode will help you rethink your strategy.

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Podcast Transcript

Matt Mulcock: Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m a guy named Matt and I’m here with you all know me love them investment genius guru, Rabih Dimachki Rabih, how are you? Doing great. We got promoted Rabih. We got promoted to the main show. We’ve we this feels we’ve been after this for so long. I’ve Mike, I feel like I’ve been around like a reporter in the field waiting to get to the anchor desk.

Rabih: Hey Matt, how are you? We’ve been after this for a while. This is our big break. This is the big break.

Matt Mulcock: And I’m like, finally made it. Yeah. This is the big break. Some, yeah, we’ve been doing two cents for so long. For those of you that don’t listen to two cents, first of all, you should not for me, but for Rabih, but even as we were getting started, I’m like, I got to remember the intro. don’t know. I’m so used to doing two cents with you, but, we put in a good word and we made our case and we got promoted to the big leagues, to the main show, to the Wednesday show. And, ⁓ we’re going to talk investing today. I don’t know if you, are you sure you can handle this? You feel okay talking about investing?

Rabih: It’s the only topic I know. So let’s skip the small talk. It’s going to get awkward.

Matt Mulcock: That’s true. Actually, that’s actually not true, Rabih. Actually, that’s not true. You and I have had so many conversations about so many different topics. You could literally cover anything and teach me something about anything, which is why I love talking to you. but the top, I think the top of the list for sure is investing. You live, you breathe investing, know, economics markets.

Rabih: That’s so nice of you. Thank you.

Matt Mulcock: So excited to talk about this and shout out to Justin. He doesn’t get enough. ⁓ he doesn’t get enough, kind of like outward praise because he’s not on the show or on our content thinking about maybe changing that. Justin’s kind of, I’m going to call him one of our backbones of our company that people don’t, ⁓ don’t always know. Cause he’s not, again, he’s not out there, but he sent us an article. ⁓ recently, ⁓ really about tax efficient investing. And so I thought we thought we, we talk about this and this is kind of in conjunction with the fact that we don’t, we realize we probably don’t talk about investing enough. Like truly, like we, we need to add more of this. ⁓ we get, we get this feedback from time to time. And as I, ⁓ kind of do scrubs of our content and review things, I’m like, man, we need to talk more about investing. So that’s what we’re going to do today. We’re going to talk specifically about tax efficient investing. Rabih, before we jump in, anything you want to say, anything you want to talk about or intro.

Rabih: No, I’m excited because if we compare this to 2 cents, 2 cents are usually timely what’s happening on the market. If you listen to it a month later, it might be irrelevant. People would forget about what was worrying them that day. I’m hoping this episode is here to stay. You can always revise it and freshen up on what it means to have a tax-efficient investment strategy.

Matt Mulcock: Yeah, love it. think it’s so true. It is kind of fun to, to have more of an evergreen, like just principle based discussion around investing and whatever we say taxes, think every dentist ears perk up like, Ooh, we’re to talk about saving me on some taxes. so that’s what we’re going to do. let’s let me, let’s just set the stage a little bit first. let’s take high level. ⁓ I think this is helpful. So we’ve talked about this many, many times, but again, to set the stage for this.

Rabih: Mm-hmm.

Matt Mulcock: There, want it, one of our main goals is to do to demystify investing as much as we possibly can while also not making it seem like this is so easy that, know, like there’s some, there’s still some complications to this that you need to take into account. But I think we want to lean more towards demystifying this because I think one of the problems is people tend to not invest because of one of the reasons I’d say is lack of understanding. They just like, this is too complicated. This is too much. I don’t even know where to start. And they kind of this paralysis by analysis. Would you say that’s fair, Rabih? So let’s start with this. In a nutshell, there are only three places to invest broad categories. Number one, private investments. That is every dentist out there who owns a practice. You’re already doing this. You invest in a private business, which is your practice.

Rabih: That is fair, yep.

Matt Mulcock: Other aspects of this might be VC might be private equity might be, you have a crumbles store and you’re selling cookies right next door to your dental office. If you are brilliant idea, providing your own supply and demand. It’s very, very smart, but any private business like that, that’s a very, very big category. There’s a lot of know how many 40 million small businesses in America, private businesses in America, something like that. There’s it’s a huge part of our economy.

Rabih: Hahaha

Matt Mulcock: number two, public markets. So this is stock market bond market. would, I would throw crypto in here, Rob. don’t know how you’d feel commodities. Like those fall under the broad category of public markets. And then the third is real estate. That’s either your single family home could be your building could be your doing fix up, fix and flips. You’re doing whatever, whatever you’re doing. Then there’s real estate. That could also be REITs that kind of crosses over the public and real estate, but either way, private, public and real estate. I think that’s just a, hopefully a good place to start of demystifying this because I think people get really confused. Just even that from that stage today, we’re going to talk specifically public markets, but anything else you want to add to that, Rabih, you just sort of the three categories are kind of demystifying this in general.

Rabih: Thanks. No, this is a really good starting point because it’s really important to start from the investment and analyze the tax rather than start from the tax and try to figure out what the investment should be like.

Matt Mulcock: Yeah, I’m so glad you said that because that’s okay. You’re a professional, clearly. What a great segue into like the main goal of this. So we kind of set the stage. The main goal of this is exactly what you just said. Like the sequencing of what you think about when it comes to investing matters. And all too often we see dentists starting with the wrong sequence. Their priorities are how do I save on taxes? And let’s just, again, the goal here being What is the main goal of investing? is to maximize your after-tax wealth. After-tax returns, that is the main goal. The main goal is not to minimize taxes paid. That might make your head explode. I don’t know, but that’s not the goal.

Rabih: Yes. I think we don’t talk about it enough because people look at these as two equal things. They put them next to each other on the line. They say I want more returns. I also want lower taxes. But in reality, it’s more of like a bigger circle and a smaller circle inside of it. There’s a dependency on these. The more you have return, the more taxes you’re going to be paying. So if you put them as equal, you do you you do not have the right order of priorities. The proper order of priorities is more return and then minimize the taxes that eat out of that return. So when you zoom out, and this is exactly what you said, Matt, I want the after tax return. I do not care if I made so much money and all of them were eaten up in your taxes. This is a bad scenario. And also a bad scenario is not making any money and not paying taxes. This is also a bad scenario.

Matt Mulcock: Yep. Yep.

Rabih: So the good scenario is in between them, making so much money, but not having the taxes eat a lot of them. So after tax return, right?

Matt Mulcock: Yep. Yeah, exactly. And the priorities matter, right? Because these discussions, like the reality is there’s a, there’s, this is not a game of solutions like binary solutions. There’s not a, there’s not a game of like, here’s the magic box that we can open and which is maximum returns and paying zero taxes. Like that does not exist. All of this is a trade off. ⁓ we’ll get into this, but all of this is a trade off. And the priorities matter. so, so this is like unequivocal number one, the priority number one should be when it comes to investing, right? We’re not saying in life, but investing. Yeah, definitely not in life. There’s way more to this in real life, but in investing, the goal is to maximize after-tax wealth. If we’re just talking pure Rabih Dimachki computer brain spreadsheet, that is the goal.

Rabih: Yeah. bummer.

Matt Mulcock: And again, I think it’s really important to start with that because I think in real life, a lot of dentists screw that up. They’re taxes or tax savings and not really realizing the trade off they’re making is really crappy returns. And I just don’t think you’re thinking about that.

Rabih: 100 % Yeah, there’s a really cool analogy in the investment industry that says hey do not let the tax tail wag the return dog, right? the taxes are the tail type of thing in this equation so focus on the return and Maybe a dog isn’t the proper analogy because it’s in our control It’s how we behave that determines whether we’re gonna have high taxes or lower taxes or higher return or lower return so kind of you know, don’t I’m gonna change the analogy, Matt, if you allow me. I’m gonna say, don’t let the dark tack sunglasses be on your face at night, you know?

Matt Mulcock: Please, I will. Okay. We’re just make up analogies. go. like that. Yeah. While your dog is snoring on your bed, we’ll just love it. ⁓

Rabih: If you if you thought this podcast was written by AI now it’s proven

Matt Mulcock: You’re like, there’s no way there’s no way. but yeah, I saw, again, I’m glad we started there of laying the groundwork, then talking about the priorities matter. and, and, and again, to your point with those beautiful analogies, ⁓ what about a dog wearing sunglasses? I’m just kidding. I’m not going to keep going. we’re not saying taxes don’t matter. Don’t get it twisted. We’re not saying taxes don’t matter. And we’re going to go into the whole point of this podcast. This episode is to talk about tax efficient investing and being smart and controlling what you can control. We’re just saying that taxes are not top of the list. And in most cases, I can say this, I think pretty safely. ⁓ In most cases, when taxes are the top of the list, the number one priority for you, like you’re making an investment decision based on taxes number one, it will most likely be in most cases, a crappy investment. Like you’re going to give up returns if number one is your tax, is the tax benefit is the number one priority. So you already hit it and kind of next part of this being controlling what you can control. And a lot of this comes down to just your behavior. Do you want to talk about this, Rabih?

Rabih: Yeah, because your behavior is that what determines whether you pay taxes or you do not pay taxes. And why is that? Is because your behavior interacts with the legal system and our legal system has, you know, certain rules that we have to follow to be able to reduce that tax impact that we are talking about. So just to zoom out, let’s understand the landscape we’re in. The tax rule says that if you buy an investment and you hold it for less than ⁓ one year, you will have to pay taxes on the gains and because it’s less than one year holding period it’s considered a short-term capital gain and If you hold the investment for over a year It’s going to be considered a long-term capital tax capital gain tax and there’s difference Those are two different rates if you hold the investment for less than a year and you have a gain on it You sell and you have to pay taxes that tax rate is going to be equivalent to your ordinary income So if you’re a dentist in the highest tax bracket

Matt Mulcock: Huge difference.

Rabih: expect to pay 37 % on those gains if the investment is held for less than a year, right? If they are held for over than a year, it depends on your income, but it could be either between 15 % or 20%, which in either situation are much less than the 37%. So the first kind of flag that you have to worry about, like how does my behavior affect the taxes I’m going to be paying is how long you hold your investment for. The longer you hold it, the less taxes you might incur.

Matt Mulcock: It’s a great point. Really, really simple, but great example of that. So this kind of speaks to the technical side of there’s a huge difference between a trader versus an investor. That’s, that’s number one, like a trader, like a day trader. I was just talking to one of my best friends. if he ever hears this, he’ll be like, you better call me your best friend. So my best friend, ⁓ he manages a company and he’s got some young people on his team.

Rabih: Mm-hmm.

Matt Mulcock: And he’s, he’s old like us, Rabih, that, know, you and Taylor was on the point at how old we are, but he’s old like me. He’s got some young 20 something year olds on his team. If you can imagine that, ⁓ but they’ve been talking to him about, ⁓ they’ve been kind of ranting and raving to him about their, their gains on their portfolio and the trading that they’re doing. And, ⁓ anyway, someone like that, that is day trading or trading on a short term basis, you just highlighted completely different.

Rabih: Yeah.

Matt Mulcock: Focuses or concerns around taxes versus a dentist, hopefully, or certainly our clients who have a much more long-term focus. Again, that alone, simply one factor, holding period, brings in a whole different, massive difference when it comes to tax and the behavior that you have.

Rabih: 100%. And I love that the holding period puts you in a lower tax capital gain bracket, because that will alter your behavior. Now that you know that it’s in my best interest to hold a security for at least one year, I’m less incentivized to day trade it or to, you know, follow the momentum. And when people stop talking about it, I’m going to get out of it. Like what’s happening with MicroStrategy right now or Nvidia right now. Right. So ⁓

Matt Mulcock: Yeah. Yeah.

Rabih: The first lesson you can learn about your behaviors, like the less I touch this, the more the tax impact will work in my favor. I’m going to reduce it and it will be in a lower position.

Matt Mulcock: Side note, the longer you hold it, the more disciplined you are in the long term. Your after-tax wealth is a much higher, there’s a much higher probability that your overall wealth will grow as well. So it’s kind of a double benefit just by changing the timeframe.

Rabih: Yeah. And I really love that you said the more you hold it because we talked about the first kind of level of legal landscape that helps alters our behavior. But there’s a second one that also double downs on how long you hold it. And it is, you know, qualified accounts, right? Right. Because these accounts, whether we’re talking a 401k and IRA or Roth IRA, we’re going to go into the details in a second, but these type of accounts.

Matt Mulcock: Yeah, yep, yeah.

Rabih: Allow you to deposit a certain amount of money and then the holding period is not until you’re like 59. So it’s even more than one year and if you can stick it out and stay for that much longer the taxes are probably slight or negligible.

Matt Mulcock: Yep. Yeah. Yeah. They’re minimal. Yeah. Compared to the overall gain in that account. We, I love that you brought that up because we’ve talked about this so many times. ⁓ when it comes to 401ks specifically, 401ks, ⁓ on Tik TOK, they’re like public enemy number one or two, usually for people trying to pitch different things on Tik TOK. Not that I’m on Tik TOK, but I hear, I hear from the people. ⁓ so, but we’ve, we’ve talked about what you just said, just the behavioral aspect of feeling like that money’s locked up. Again, not only is tax efficient, but also behaviorally is going to be something that like people just tend to think of like 401ks as like a whole different, like just a whole different category in their financial life. They tend to not like freak out with their 401k when markets go nuts, but they will with a brokerage account. So even behaviorally here, it’s just a whole different ball game. you know, on the behavioral side and also

Rabih: Mm-hmm.

Matt Mulcock: treated very differently from a tax perspective. So with that said, let’s talk about this, Rabih. So we talked about behavior being a huge impact here. So holding period being one of them, right? We just hit that. So let’s jump into what us nerds would talk about. You’ve already alluded to it, but we’d call what we’d call tax location. So certain accounts being treated differently from a tax perspective and kind of the impact that can have on taxes.

Rabih: Yeah, 100 % because it alters your behavior as we were saying. ⁓ Help me out Matt. So for ⁓ IRA, you can deposit up to 7k year, right? And it’s pre-tax, but then you take the money out. Of course. Yes, I need your help. I’m stuck in my spreadsheet. I forgot how this works. You take your money out at the end and you take

Matt Mulcock: Do you want me to teach you something, Rabih? As a planner? Am I teaching you something? What the heck?

Rabih: you pay taxes on the money that’s distributed, right? In a Roth IRA type of thing or a Roth type of account 401k or Roth IRA, you deposit money that is post-tax, you’ve already paid taxes on it, but then when you’re 59 and you take your money out, you don’t have to pay a penny in taxes on these. So, have to alter your behavior and not…

Matt Mulcock: Tax free. Yep.

Rabih: you know, hold the period hold the money for a long period of time. But if you know what you’re going to be doing with the money, you can make benefit or like abuse the benefits that these accounts provide you. Like if you know that this money is going to only be left till retirement, you will not you’ll put it in these accounts and not touch it until then and get it tax free. So there’s behavior and there’s knowing what you want to do with your money, which you know, it’s all about how you guys give advice here at dentist advisor.

Matt Mulcock: Yep. Yeah, for sure. The, this is a huge one. Everything you just said is exactly correct. You could basically, you could basically be our main advisor here was just hire you. Locating assets in the, like putting the right investments in the right accounts for a dentist is huge over the course of a career. And the idea here, like we talk a lot about like diversification of your investments, like the actual investments, like, you know, making sure you’re not holding just one stock and you’re diversifying via ET. I will get to that a second, but this is something I don’t think a lot of dentists think about a lot is in my, am I diversifying again, the location of the types of accounts I’m using for the future, the goal here. And there’s basically three broad categories of account types that you can locate assets in. And they’re all treated differently from taxes. You already hit one or you heard to the pre-tax traditional IRA or 401k. That’s what we call pre-tax or, you know, qualified. ⁓ then there’s Roth. That’s a separate category. You just hit it perfectly of how they’re treated. And then there’s the after-tax brokerage. Those are kind of the three broad categories. And the goal at the end of your career is to have as much as you possibly can spread across these different account types. So not being too located or focused in any one area. And the reason being is. In retirement, you want to maximize tax flexibility. want to maximize the, because every single one of those buckets, traditional IRA or 401k, profit sharing, just traditional accounts, Roth and brokerage are all treated differently. And you want to be able to have the flexibility, depending on what’s happening in your life to pull from one or the other at different times. Again, that gives you maximum tax flexibility. So I don’t want to understate how important this is to locate assets properly that, know, now and beyond in your career and when you’re investing.

Rabih: So even before trying to decide what to invest into these accounts, what security I’m going to be purchasing, deciding on what to put in each account just makes a huge improvement in your tax profile, even before you get into the nitty gritty details of what you’re invested in.

Matt Mulcock: Yep. Yeah, exactly. This, the foundational pieces even exactly. Like you said, there’s a lot that goes into that even before you understand or even start picking what to invest in. So yeah, it’s huge. Anything else you want to say about that around behavior, like turnover rate or long-term like holding period or asset location? Want to get into the nitty gritty.

Rabih: I think we’re it. I’m excited to get into the technical lovely stuff.

Matt Mulcock: So let’s talk about, yeah, the next kind of piece of this next layer of this, when it comes to thinking about tax efficient investing is what to actually invest in. This is where you shine, Rabih shining star.

Rabih: Yeah. It is because if we were in the IRA or the Roth, that location that you talked about, then I’m not worried about the, you know, the tax profile of what I’m investing in. Those are going to be treated according to the accounts tax setting. You know, if it’s a Roth, I’m going to take them out without paying taxes, regardless of what I’m invested in.

Matt Mulcock: So let’s back up on that. I want to make sure we’re hitting this point and that it’s very, very clear. Because what you’re saying is when you invest in an IRA or Roth or 401k, anything happening throughout the year, buys, sells, dividend payouts, capital gains payouts, it’s insulated in those accounts. There is no tax liability to you. That’s really, really critical to understand that you sell something in an IRA doesn’t matter from a tax perspective.

Rabih: Yep. Yep.

Matt Mulcock: The only thing that impacts taxes in any of those types of accounts would be when you put money in or pull money out, it’s the actual money going in or coming out that actually has a tax impact, depending on the type of account in a brokerage account. It is the actual activity happening throughout the year. I just want to make sure we were hitting that really clearly as we talk about this next piece, because that is like huge. When we talk about the types of investments to hold in these accounts.

Rabih: 100 % because if I don’t have to worry about the activity within it, I don’t have to really look at an high after tax return. In an IRA, Roth IRA, I want the highest return possible regardless of the taxes because the account itself takes care of that for me. But if in a brokerage account, here’s where you add this layer of nuance about

Matt Mulcock: Period. Yep, yep.

Rabih: So in this brokerage account where activity matters, every buy and sell has and every dividend issued has a tax implication. What do I invest in? What do I buy? What do I sell? And ⁓ a lot happens there because, and actually a lot of the mistakes happen there because people access their brokerage account as they like, whereas as you mentioned, the IRAs are forgotten.

Matt Mulcock: Yep. Yep.

Rabih: Whereas if you want to day trade, probably day trade or a place that doesn’t hurt you tax wise. But let’s leave that aside. But if you’re in a taxable account in your brokerage account and you decided to invest in a balanced split of stocks and bonds, what stocks do you choose and how do you form that exposure? And what bonds do you choose? And also, how do you form that exposure? Which one do want me to start with?

Matt Mulcock: Yeah, so can I Ray? What stocks or bonds? Let’s do, ⁓

Rabih: Yeah.

Matt Mulcock: Stocks are more intuitive for people. Maybe start with stocks. Let’s ease them into it, Rabih.

Rabih: Okay, let’s start with the stock. Let’s start with the stock. 100%. So with stocks, I think there are multiple layers you could do this. The first layer and probably the most complex, although people do not think it’s so, is to buy individual stocks. You will buy every single company that is out there that you like and you’ll hold them in your brokerage account. These stocks every quarter they’re going to have earnings, know, the companies report their earnings and if they’re doing well, they’re going to issue you a dividend. And hopefully, hopefully you do not sell these stocks for at least a year. So you any sale is considered in the long term capital gain ⁓ bucket. Right. So those dividends that are getting issued by the stocks, you’ll pay ordinary income on them every single quarter and or every single year. And the Capital gain is only going to be incurred when you decide to sell and we’re hoping you do not sell below a one year period. So this is with stocks and this is when you are buying individual stocks. Why did I say it’s the most complex? Because as these stocks fluctuate and deviate, you would want to rebalance them back to get a more diversified exposure. And the mere fact of you rebalancing back, AKA you’re selling and you’re buying, will leave a tax trail behind you that you will have to pay. So it is complex because, hey, I bought these individual stocks. love that I’m looking at my statement and it has like 500 names in it. But now when I’m trying to readjust the risk, because this is what’s more beneficial to me, I have to also take into consideration the tax impact of that. This is, it gets complicated. Thankfully, we’ve got inventions that are 80 years old now called the mutual funds. And we’ve got inventions that are 30 years old now.

Matt Mulcock: Yeah, can get complicated.

Rabih: Called ETFs, which kind of eliminate that logistical hardship for you. You can buy a mutual fund that holds the 500 stocks, the thousand stocks, or an ETF that holds the 500 stocks, thousand stocks, and that eliminates the rebalancing aspect for you and the tax implication of rebalancing that shows up. And just like a stock, this mutual fund that has a bunch of stocks in it will give you a dividend every single quarter that you will pay ordinary income on. It could not be efficient just because you’re aggregating all these ⁓ dividends together. But because it’s in a mutual fund and an ETF, ⁓ there is going to be something additional called end of year capital gain distribution, which you do not see in stocks and bonds. So what happens at the end of December, we’re coming up to the season. If you hold the mutual fund or an ETF, you’ll see that, I received a dividend, but I also received a capital gain distribution. This is important because it really depends on the mutual fund and ETF that you are purchasing that determines whether these capital gain distributions were at the stock level, short term or long term. Like the rule carries over. So it’s up to that manager who’s managing the mutual fund or ETF. They’re passing it to you. Are they going to pass you the short term capital gain or the long term cap gain? So if you’re buying an ETF or mutual fund, you have to keep an eye out. like

Matt Mulcock: Yeah. They’re passing it through to you.

Rabih: How tax efficient is that manager that I decided to outsource their rebalancing to? Right? ⁓

Matt Mulcock: Yeah. Yeah. Yeah. This is huge. like these are, these is, this is where we’re starting to get more to the technical aspects of so not. So the questions I have to answer is where to like, which account types should I have? And then what assets or investments do I put into those accounts? So what types or again, we’re talking public markets here. So we want to invest. Okay. So we’re young, we want growth assets. So we’re going to focus on stocks.

Rabih: Mm-hmm.

Matt Mulcock: Okay. Well now the decision is, I have to, am I going to invest in individual stocks and managers myself, or if I’m going to pick an ETF or mutual fund? But then the question becomes to your point, Rabih. Okay. But how do I, how do I identify the efficiency of those managers? So guess that’s the natural question I have leading to this is what are you looking for? How do you, how do you identify that?

Rabih: Well, gladly, well, gladly for me, because I’ve got the data, I’ve got the software, it’s, it’s harder for just a retail investor out there to go and really read all these fine print for the each mutual fund and ETF. But what you could do is that you will analyze all the distributions it’s done throughout the year, every quarterly or monthly dividend that issued out and the year end distribution. And those are classified as either ordinary dividend, or qualified dividend. And you would want to cherry pick or choose the ETF and mutual fund that when they distribute money out, they distribute them in the form of qualified dividend or qualified distribution, because that is, there are no taxes to be paid on the, actually, no, there is taxes. It’s the long-term capital gain taxes that you pay on it versus the ordering. So yes, you, and I love it because,

Matt Mulcock: It’s capital gains versus ordinary. Yeah.

Rabih: We got lot of dentists asking us, like, okay, I have this ETF that pays that much dividends. And it’s, I’m talking about a globally diversified ETF. I’m not going into the weird strategies yet. And ⁓ I like it. It’s paying me three, 4 % dividends. And we look at these dividends and we’re like, well, they are taxable dividends, not qualified dividends. So how about we find someone that performs as well or better and gets you qualified dividends instead. ⁓ So

Matt Mulcock: Yeah.

Rabih: You have to balance the return and the performance of that fund and the type of distribution it gives you. And you hope that it is a qualified dividend.

Matt Mulcock: So coming back to what we started with, is proud number one is you are focused on after-tax wealth. You’re focused on putting your money in the public markets in something that’s going to grow. So generally speaking, you’re focused on equities at this point, stocks. But what you just said is so critical here when we say, we’re not saying to completely forget about taxes drilling in here on kind of like this optimization thing of saying, okay, if we evaluated your, which we do this all the time for dentists, we evaluate your portfolio and can tell you like, and be able to point these things out. But you might have a priority of growth with exposing your money to these growth assets via like an ETF, but there also might be a better way to optimize that still from a tax perspective. Like you’re saying. Okay, you’re doing this, but this is not very tax efficient based on these dividend payouts. There’s these other things that you could be looking at getting the same return, still number one priority, but much more tax efficiently.

Rabih: 100% over here, we’re only comparing it between these ETFs that are long term, low cost, like think Vanguard, think Dimensional, et cetera. We’re talking about these. We’re not talking about high dividend paying ETFs. We’re not talking about covered calls. I’ll get to those in a second, which people really like them because they pay you money. But I’m still talking about those that really rank the highest in terms of long term growth. And even between those, you can compare.

Matt Mulcock: Yep. Yep.

Rabih: And you can see it actually, if you look at the iShares ETFs versus the Vanguard ETFs versus dimensional ETFs versus AQR ETFs, all of these, you can look there and see is there dividend and distribution that’s being issued qualified or ordinary? Is it taxed at 15 % or 37 %? And I really like it because it makes it more granular. People think of these long-term low-cost ETFs as all in one bucket, but they’re not really.

Matt Mulcock: Yeah. Yeah.

Rabih: You can go and drill and see their taxes and see which one does better than the other. And there’s this bucket. And then there’s all these other strategies, which are, hey, I’m going to prefer chairs. Hey, I’m going to buy high dividend ETFs. Hey, I’m going to buy these covered call strategies that give me ⁓ income every single month. In terms of the dividend amount that they’re going to give you, these three strategies that I just mentioned compared to

Matt Mulcock: Yeah, it’s huge.

Rabih: You know, the bucket of long term investment, they give you a higher current money, like the income, the current cash that you’re getting is a much higher amount. But this brings us to the first question. If you compare them on an after tax return, do they do better than these long term low cost qualified dividend type of equity exposures?

Matt Mulcock: Yeah. Which is again, why that is the lens you should be looking through at all times is the holistic after-tax wealth. Can we talk about really quick, Rabih, ⁓ if we’re going to, while we’re in kind of the nitty gritty part of this, ⁓ of being, we talk about mutual funds. talk about ETFs. Let’s compare those two specifically for someone out there listening from a tax perspective and what things to look for and why. Let’s say like in a brokerage account, one might be better than the other.

Rabih: From a tax perspective, actually, it’s really related. said mutual funds are 80 years old and ETFs are only 30. So with a newer, newer, younger technology, you’ve got better tax treatment. Back in the days with the mutual fund and let’s, let’s make this ⁓ kind of analogy. It’s you, me and a hundred other copies of us. And we have decided to buy a mutual fund. Imagine the world we would ruin the world, but

Matt Mulcock: From a tax perspective Top. Whoa. Yeah. Scary. Yeah.

Rabih: There’s just a hundred Matts and Rabih’s sitting there and they all put money on this fund, the mutual fund. If for example, all the Matts decided to sell out and leave the Rabih’s holding the holdings, in a mutual fund scenario, Rabih didn’t sell, but in a mutual fund, the capital gains that were incurred as a result of Matts selling will be shared across everyone. And Rabih will indirectly pay capital gain tax, even though he did not sell.

Matt Mulcock: Typical.

Rabih: Whereas in an ETF structure, if the mats in the portfolio decide to sell, it doesn’t necessarily mean that Rabih will also participate in paying the capital gain tax on it. So if you have a mutual fund in your brokerage account and it happens that the market sells off, other large investors in that mutual fund sell out of it. At the end of the year, if you’re still holding that mutual fund, you might see a big fat capital gain distribution. Now, because you sold, but because other people participating in that mutual funds sold and that impacts you because you’re all in this together type of thing in a mutual fund. ⁓ In the ETF, this has been due to how it’s, we’re not going to get into the details, but how to like the ETF structured, how shares are created, et cetera. You can eliminate that tax impact, which is great. Nowadays, especially with the dimensional, because we invest in them and I monitor this day to day or like every single year as we get distributions. You can now be a little bit creative in how you manage the mutual fund behind the scenes to make it as good as an ETF. But until this now, there’s no mutual fund that’s better than the ETF. The ETF is a newer technology, but you can still find mutual funds that are managed so well that they act as if they are ETFs.

Matt Mulcock: Got it. Got it. So they’ve caught up or at least depending on the manager of the fund, the structure doesn’t matter as much, but everything you just said, like in theory, it can matter. And I think it’s a good example to point out again, coming back to this theme of after-tax wealth being the focus that you could have investor A, investor B, again, we just highlighted that they’ve now made mutual funds and I catch up to ETFs, but the ones that haven’t, let’s say you could have investor A and investor B. exposed to the same ⁓ investments, really like the same companies within those structures, but one’s managed better for taxes versus the other. Like you were just highlighted at Metraform versus the ETF and investor B and the ETF. Again, they both held to the end of the year, but investor B maximized after-tax wealth because of the structure, the investment that they had and maybe where they located it, by the way.

Rabih: Mm-hmm.

Matt Mulcock: Versus investor A, even though they might look and be like, what the heck, we’re invested in the same thing. That’s what we’re talking about, the efficiency of focusing on taxes here and after-tax wealth.

Rabih: Yeah, and I feel it’s like you want to get a full score on tax efficiency. The first one would be your behavior. That will eliminate 50 % of your taxes, right? Another 30 % will be eliminated by the location. Are you in a Roth or in an IRA versus a brokerage? And then add how many? Where 80 % is it true?

Matt Mulcock: Yeah, now you’re 80.

Rabih: At 10%, and that would be the difference between whether you’re in a mutual fund or an ETF or individual stocks within it, right? And the last one, those were up to 90, and the last 10 % that gets you to 100 % tax efficiency is probably strategies that you’d use in your portfolio, such as tax loss servicing, et cetera, that we’re gonna get to. But what I want to highlight is that most of the tax gain you’re gonna do comes from your behavior. Followed second best is location. Third is ⁓ the product that you’re investing in within each of these accounts. And people mix them up. They think, if I get a municipal bond in my after-tax brokerage, I’ll do well. No, you are choosing the one that improves your tax efficiency by 10 points. And you’re thinking it’s more important than the one that increases your tax efficiency by 20 points. We have to rank the

Matt Mulcock: Yeah.

Rabih: Marginal step that really makes a dent in your tax impact.

Matt Mulcock: It’s such, again, I can’t, I love that you brought this up because even using the municipal bond example, again, enforces even more this idea that we should have started with this as the example from an app when you’re talking about after-tax wealth maximization, like that’s the number one priority with investing. The example you just gave, you might put all of your money in a municipal bond in your brokerage account because you’re like, well, it’s the most tax efficient thing. It’s tax free income.

Matt Mulcock: you do that for 30 years and then your neighbor down the street put all their money in a global diversified equity portfolio for the next 30 Rabih, you tell me who wins over the next 30 years when it comes to after-tax wealth.

Rabih: Definitely the globally diversified portfolio. Definitely. And if this analogy is still not clear, we’re going to bring in healthier because it’s Matt and I, but it’s like, ⁓ I’m not going to eat sugar, but I’m still going to only sleep four hours a day and not workout. Well, yeah, good for you. You’re not eating sugar, but which one has the largest magnitude in terms of impact on your health? And you have to have them in the right order. And the right order that we’re talking about is behavior, location. then type of investment, and then later on optimization slash tweaking. Yeah.

Matt Mulcock: Love it. Love it. So I’m glad you drove that home. ⁓ so did you have anything else you wanted to talk about when it comes to, mentioned covered call strategies and other tactics there. You don’t want to mention that.

Rabih: Yeah, and these are new products and people are falling prey to them because it’s like sexy, hey, I’m investing in the stock and then they’re selling calls that gives me money on them. So I’m continuously invested and they’re giving me money. The problem with these is that they are splitting your return other than the fact that they’re making all your dividends ordinary tax, tax at 37%. Other than this bad reality, the problem with those is that the return component It could be coming from dividends or it could be coming from price appreciation. These high dividend ETFs and mutual funds or covered called ETFs, what they are doing is that they’re taking the return from the price appreciation and funneling it through the return that’s coming from cashflow. But if you combine them and look at the total return, you’re still underperforming a buy and hold type of strategy. So people should be aware of it’s just like, just because it’s being funneled through

Matt Mulcock: Yeah, yeah.

Rabih: Cash flow it does not mean that the total return is still as high.

Matt Mulcock: Yeah. It does feel like we talked about this on two cents a couple of weeks ago with Jake. It does feel like the, the, dividend approach has kind of come back into like dividend investing used to be just for your grandpa. And now it feels like it’s like made this resurgence on Tik TOK. Like it’s some novel thing about dividend investing. we don’t, won’t go into too many details, but just to your point, Rabih, it’s not, it’s not as it seems in most cases when they’re what I have found when it

Rabih: With Jake.

Matt Mulcock: Comes to people pitching dividend strategies online is they like to focus on like half truths. So they’ll be like, ⁓ the dividend yield is 11%. Exactly. But then what about the price, the actual price, the actual return? And I guess this is a good point to bring up because we talked about this on that episode. And if we didn’t hit it on this already, we’ll just kind of back up that when it comes to investing, there’s, there’s two

Rabih: Yeah, but what about the price return? Yeah.

Matt Mulcock: There’s two things that you have to think about or that factor into that return. There’s the capital appreciation to your point, Rabih. So the actual, bought the stock at $10 at Gruta 20. That’s the capital appreciation aspect. And then there’s the dividend. There’s what it’s paying you along the way. And those are the two main ways you, those are the two ways that you get, or the two sources of return, right? When again, people are pitching these strategies, they’re only talking about one of the two. And they always say like, this dividend yield is 11%. But to your point, you’re also negative 37 % this year in capital appreciation. Yeah.

Rabih: 100 % and actually between those those two sources of return the cash flow return versus the price return Well, one is in your control. The other isn’t the dividend the cash flow return isn’t in your control They’re gonna issue you dividend whenever they want to issue you a dividend and you’ll have to pay ordinary taxes on it Whether you like it or not. We’re as the price return aspect of it Which is that you know the appreciation of your principle of what you put in Well, that is in your control because you’re only gonna pay taxes on it

Matt Mulcock: Yeah.

Rabih: When you sell. And hopefully you hold it for more than one year. I’m like hitting this very hard because it’s really important. You hold it for more than one year and now you pay much lower taxes on it. So even between these two sources of return, one is more tax efficient than the other.

Matt Mulcock: Yeah. Yeah. Yeah. It’s huge. ⁓ okay. The other thing we wanted, I wanted to circle back on, ⁓ just, just, ⁓ tactically for people out there that are maybe investing on their own or thinking about this, ⁓ we, we talked about it somewhat earlier, but this is probably a good time to bring it back up being turnover. So turnover rate. So if I’m looking at a mutual fund or ETF, this is important information that you’re going to want to know what is turnover rate Rabih and why. Would that matter from a tax efficiency standpoint?

Rabih: 100 % because the example where we gave where, you know, the mats decided to sell out and the Robbies were there. Well, from the perspective of the mutual fund manager or the ETF manager or yourself, if you’re managing individual stocks, what you would want to do at that point is rebalance and readjust the risk. And what that means is that you’ll have to buy some stuff, sell some stuff to readjust the weights appropriately. This is one example of turnover. And this is kind of It’s a turnover that was caused by the individual investors in the fund. Another type of cause that would cause a turnover is the market moving, the market crashing. Events like GameStop, where one company just becomes a very large proportion of your portfolio compared to others, or Planeteer, Nvidia, et cetera. Or when one incredibly crashes, like overnight or whatever.

Matt Mulcock: NVIDIA.

Rabih: For example, if you have a portfolio that has exposure to Bitcoin and equities right now for the last two weeks, Bitcoin is down 33 % where equities are flat. So you’d want to adjust those to bring back the allocation. So sideways bashing on Bitcoin. Yeah. So the idea would be is that the market itself could cause you to

Matt Mulcock: We’re not gonna dance on grapes yet, who knows?

Rabih: Could prompt you to readjust and rebalance and trade stuff in and out. And this is a turnover event. And because you’re buying and selling, the same rules apply to everyone. You’ll have to pay capital gain tax, whether it’s short term, long term. So the research has been showing that if your money is within same strategy, for example, both are tracking the S &P 500, you have mutual fund A and mutual fund B. If mutual fund A that’s trading the S &P 500 has a higher turnover rate, aka they’re buying and selling more within that mutual fund throughout the year, then mutual fund B, the after tax returns for a mutual fund A would be much lower than mutual fund B. This is what the data shows us and it’s repeated and it actually makes sense how this propagates and why you have to pay taxes on it. So an indicator for you is to choose a fund if you’re doing it on your own where the turnover is very low, but Vanguard has a very low turnover, but also making sure that the distributions and upcoming from that turnover are also tax efficient.

Matt Mulcock: Yeah, it’s huge. again, this is, we’re coming back to this idea of location. Like these things matter when you’re talking about after-tax accounts, like a brokerage account. These are optimization things you’ve got to be thinking about in those brokerage accounts that won’t matter again in IRA or Roth IRA. Again, just layering on top of all these decisions that have to be made to be maximally tax efficient. So that leads into kind of the ultimate optimization type stuff, kind of tying this all together. you mentioned it earlier. The first thing that came to my mind that you already mentioned was like tax loss harvesting. Again, this is another one of those things, Rabih, that I think it’s thrown out there a lot. It’s a sexy strategy of like, we tax loss harvest. And you’re saying, if I remember, if I’m summarizing what you said correctly earlier, it matters. It’s an optimization thing you got to be thinking about, but it’s in the 10 % bucket not in the 80 % bucket.

Rabih: Yes, like think of the pyramid. This is the cherry on top. Only after you’ve done everything we’ve talked about for the last 40 minutes, only after you’ve done all of that, then you can optimize and do tax loss harvesting. Because if you’re trying to do tax loss harvesting without the proper foundation, you might hurt yourself. Like don’t go deadlift 500 pounds if you can’t run a mile. Like… ⁓

Matt Mulcock: Yeah. Yep. Believe me, do not. Yes, just don’t do that. Just don’t do that. Yeah, don’t do that.

Rabih: So that’s the thing with tax loss harvesting. And then the question is, OK, so why is it the cherry on top? What does it add to all what you’ve done? Aren’t we doing enough? You are doing enough. But tax loss harvesting is one of these, I would say, loopholes in the tax system so far. But it’s so beneficial that it’s good for it to stay here as a loophole, because everyone has access to it. It’s not like it’s for only some people. And the idea would be, OK. So if I was investing at an, uh, Unapportune time where I just put my money in and the market dipped. Well, how about I get compensated back from uncle Sam for the risk that I took? How about I sell that position, uh, lock in that loss or what we say harvest the loss. And then with the proceeds, find a very similar ETF, a very similar company or whatever that has the same risk profile invest in that one and ride the market back up. In that sense, I would maintain the same risk exposure. I just moved from one security that tracks the S &P 500, went back into another security that tracks the S &P 500, same risk exposure, but in between, I was able to harvest some losses to either offset other gains or deduct them from my income up to a certain amount. So it is, you know, a really good

Matt Mulcock: Yep. Yeah.

Rabih: technique to, and it is really optimization. It is like the cherry, cherry, cherry on top. If you have a portfolio and it happened that the timing worked in your favor and the market dropped and it’s, I know it’s ironic saying the market, it happened in your favorite and the market dropped, but it’ll allow it to be in your favor because that will be an opportunity to tax law service.

Matt Mulcock: Yeah, let’s put some real numbers to this because, or at least a real example to this, because we’re in the process right now of doing year end reviews with all of our clients. And we’re doing, ⁓ it’s really fun right now to be talking about returns overall for the year and the last three years, because the markets have done just incredibly well. So it’s fun to see like, literally in a lot of, you know, multiple six figure type returns, I’ve seen several seven figure type returns, meaning in raw dollar amounts added to portfolios. But the other thing that we review when we’re reviewing returns and showing them what they’ve actually added to their portfolios is, Hey, also along the way, look what we took in losses. And it always kind of throws people off. They’re like, wait, wait, hold up. I’ve added how much money in returns, and then you’re showing me these losses that you’ve locked in as well. And we have to explain, but let’s take this year as a perfect example. think this will hopefully like perfect year for it because

Rabih: This is a perfect year for those.

Matt Mulcock: If we talk about Q1 of this year was as maybe none of us remember, but it was doomsday. was 2008 all over again. Uh, the low this year, I only remember this cause it’s my mom’s birthday. Um, was, uh, was April 8th. And so, but we had a massive drawdown in the market for Q1 until April 8th. And then from April 8th until now, now recently we’re recording this as of November of 2025. Uh, we’ve had a little bit of turmoil the last couple of days. Um, But it’s basically been an on charge upwards from April 8th till now. And so what did that do? This was like the perfect year. We saw pretty significant drops in Q1. Master Flex investor, Rabih jumped in there to our portfolios. I just gave you a new nickname and started intentionally taking losses in our clients’ portfolios and immediately buying, you know, just basically transitioning and locking in those losses to then reap the benefits of the game. Rabih, did I do that any justice? I want you to jump in here and tell me where I got that wrong.

Rabih: You are accurate. You’re accurate. I’m just going to get into the technicalities of it a little bit, right? Because, and yes, I love it because you’re telling clients at the end of this year, hey, your portfolio is up 15, 16%, depending on when you put money in. I’m just talking about the index in general. You’re up that much, but we also harvested like probably 10 % of losses on your portfolio for you to carry forward or upset. And it seems like, oh, I got

Matt Mulcock: Please do. Yes.

Rabih: My cake and I ate it too, but ideas are easy, know, tax loss harvesting is an easy idea. I’m just going to ⁓ sell the losing position by the another one that looks like it and harvest it. But this is not how the investment management industry goes. Ideas are so easy. I can now think of a great narrative for which company is going to be the next superstar that makes us all billionaires. But the implementation is where

Matt Mulcock: Yep, yep.

Rabih: all investment ideas are killed. And I’m speaking from a practitioner’s perspective here. And the implementation of tax loss harvesting, just like how, ⁓ great ETFs, low cost, low turnover, great for long term, but then you can even granulate and compare them based on the tax efficiency or their dividend. Every tax loss harvesting strategy and the way you implement that strategy differs from one person to another. So If you decide, hey, there’s a losing position. I’m going to sell out of it. And maybe 15 minutes later, I’m going to find another one to buy it. This is a terrible way to do taxless harvesting. That is an implementation that will hurt you more than the benefit of the idea to start with. need softwares. I’m sorry. Like this is sad reality. You need strong softwares that are able to do trades within less than a second between each other to be able to exit a security, go in into an X security.

Matt Mulcock: Yeah.

Rabih: without having any price deviation between them. And you have to be able also during panic, the bid and ask spread on each ETF or stock widen. So now you are paying more in hidden costs than you would do on a normal day when you’re trading. So how do you control for these? So if you want to get into the nitty gritty details of how do you do the implementation, have to look at your costs. You have to look at logistical and operational risks that happen. Like what if your computer crashes? Then you lose millions of dollars?

Matt Mulcock: Yeah.

Rabih: Like whatever decided to do an automatic restart. So there are a lot of stuff that go into it that you need to be running a very tight ship. And that’s why it is the cherry on top. You do not do this stuff if you’re building a simple portfolio. You really have to have all the foundation built up and then have yourself ready for opportunities when tax loss harvesting happens.

Matt Mulcock: Yeah. And I’m glad you said that last part because we would in no way ever tell a dentist out there and say like, Hey, if you’re not, maybe we should be doing this, Rabih. We’re not great sales guys, but, ⁓ Hey, if you’re not tax, was harvesting, you’re doing it wrong and you’re going to be out hundreds of thousands of like, we’re not saying that it’s an optimization tactic and everything that we’ve already highlighted throughout this whole episode is far more important, but it is something that can make a difference if done correctly, especially in years like this year.

Rabih: You

Matt Mulcock: Like these are optimization tactics that can, you know, turn the dial up on a after tax return. And it starts to become more impactful, even more so the bigger your accounts book up. Right now we’re talking about significant changes or enhancements to a portfolio, but I also don’t want a dentist out there listening and being like, man, well, I haven’t taxed us. I’ve been doing this on my own for 20 years and I’ve never tax us harvested. I’ve. I’m screwed. Like that’s not true. It’s just that again, these are optimization techniques.

Rabih: Yeah, it’s much better to not do tax loss harvesting than do it incorrectly because that would hurt all the gains you’ve done on all the different foundation.

Matt Mulcock: And then, ⁓ I love that. Yeah. Great. Such a good call. is better. Let’s repeat that it is better to not do it than to do it and do it incorrectly. You’re going to hurt yourself way more. Yeah. Such a good point. ⁓ okay. Rabih, you’ve written something here. I’m just going to read it and then you can explain. Okay. This also falls into the category of, ⁓ this also falls in the category of optimization. Rabih, tell me about low accrual equivalent tax rates.

Rabih: Hahaha This was a note for me, but I’m just putting it Okay.

Matt Mulcock: Okay, well I read it and so you can explain to the people why your note says low accrual ⁓ equivalent tax rate.

Rabih: So like we’ve went through a lot and we talked about tax location and we looked at the security that is in there and there are so many layers. So from a portfolio manager’s perspective, we kind of summarize all of that in a metric that we look at and it’s this accrual tax rate, equivalent tax rate. And what this tells me is, okay, if I am doing Roth or an IRA, a qualified account where I don’t have to pay taxes, but I’m also doing high dividend ETFs. What accrual tax rate will it give me? Like what score would it give me? Or if I’m doing a taxable account and I’m doing money market funds in it, bad idea, but if you’re doing that, right? What tax, after tax rate I’m gonna be looking at. And it’s more of a ratio that tells me what is my pre-tax return and what is my after-tax return. and what’s the ratio between them if I’m going to simplify it. And what we’re trying to do is because you can create so many combinations between the different type of account and different holding that’s in it and how the holding is managed. You can create so many different combinations. You have a standard metric that allows you to compare what goes where and what is the most efficient way. So we’re looking at these metrics. It allows us to do an Apple to Apple comparison. And from there, properly choose and allocate stuff much faster and in more efficient way. So there is this metric that you have to look at. But I think that what I wanted to get at with this metric is that it is highly correlated to the amount of times you have to pay taxes. The more times you have to pay taxes, the worse that metric is. If you have a stock that’s paying you or a bond in a brokerage account that is paying you coupons every single month and you pay taxes on them every single month, well, aggregated, but kind of, then this is going to make it worse for you.

Matt Mulcock: Yeah, yeah.

Rabih: So you would choose a bond that pays coupon every single month and you put it in an account that doesn’t get taxed and kind of improves that metric. So I know it’s a complicated and we’ve been, it’s complicated and we’ve been laying layers, but there are tools to actually find the efficient, you know, decision-making process.

Matt Mulcock: Yeah, it’s huge. again, that’s the way this fits into the, ⁓ optimization piece of this, not a fundamental part of it, but definitely something that is again, the more you get into investing and I’ll say this again, the bigger your portfolio gets, the more you want to think about this kind of stuff. ⁓ the consequences become bigger. The, the, the turn of the dial, a couple notches here or there can make a significant difference. So with that said, Rabih, I’m to put you on the spot.

Rabih: Mm-hmm.

Matt Mulcock: You weren’t planning for this, so sorry. If you had to guess and just make it up, we’re not saying guarantee. We’re not saying this is shooting from the hip. If you had to guess when it comes to utilizing all of these techniques we’re talking about. So like the a hundred percent, the whole spectrum of someone, again, investor A who’s not focused on behavior, not focused on location, who’s not focused on

Rabih: Okay.

Matt Mulcock: any of the optimization techniques, they’re just like throwing crap at a wall versus investor B who is focused on all these things. If you had to guess year to year or over the, let’s go year to year on average, what’s the difference in return if you had to give an average? Just guessing.

Rabih: Do you have the data for that? I don’t know if you can find it because it’s going to depend on how the market is doing every single year and what their behavior. I honestly remember that Vanguard study that says there’s a 3 % advisor alpha because they organize, et cetera. Well, there is a tax efficiency alpha. It’s actually called rebalancing alpha. And if I’m not mistaken, it’s around like 1.5%.

Matt Mulcock: No, I don’t. Do you want me to find it? I was just going to pull that up. Yep.

Rabih: Which is over 40 year periods kind of almost doubles your money. So yeah, I’ll give it a 1.5 to 2 % alpha just by being tax efficient and insightful about how you do these stuff.

Matt Mulcock: I, I’m going to pull this up. just, while you were going through that, I think that’s fair. Let’s see if Vanguard can support this for us. Here we go. Found it. ⁓ asset. Okay. Here we go. Okay, so this is broken down in basis points. So ⁓ from an investing perspective specifically, it’s saying ⁓ investment selection. It’s funny because it gives you a range on this one. It’s saying so ⁓ for 25 years Vanguard has been putting out the study of saying the value of an advisor and they actually break down categorically where the advisor adds value and ⁓ we’re just going to hit the ones they talk about and then by how much. And we’re just going to talk about the ones that they’ve highlighted around the investing specifically. So investment selection, they give a range, Rabih, say zero possibly if they’re, I guess crappy to up to a hundred basis points. 1 % rebalancing, proper bouncing strategy. It’s saying they say 12 basis points is some pretty minimal.

Rabih: Mm-hmm.

Matt Mulcock: 12 basis points is what they’re saying is the benefit. Behavioral coaching is the most they’re saying it’s up to 200 basis points on average of 2%. And then here’s what you’re talking about. The very nitty gritty pieces, asset location and tax efficient investing specifically, and then also tax loss harvesting. All of that is around, they’re saying anywhere from

Rabih: Okay.

Matt Mulcock: One and a half to could be two and a half percent total. You were really close, which I think is fair. Like I think that makes sense is that doing all these things over time, ⁓ properly, I would, I would dare say my guess would be on average one to 3%, depending on the year, one to 3 % change or like difference in returns. I think it’s a pretty fair, pretty fair assumption to make. So.

Rabih: I was close. Okay. Okay. Yeah.

Matt Mulcock: I just wanted to kind of close out with that of like the one to 3 % over the course of a investing lifetime is significant, massive.

Rabih: And you know what I like most about this? Is this is a 1 to 3 % that is under your control, rather a 1 to 3 % where you’re trying to predict the markets.

Matt Mulcock: Yes. Yes. Such a good point. We’re talking about mechanical behavioral things. We’re not even talking about, like you said, timing or things that are, that people are going to sell you on, you know, ⁓ it’s a really good distinction that you just made. ⁓ okay. So quick summary. We’re saying most important priority in investing when it comes to this is maximizing after-tax returns, right? Not chasing. Not letting that tax tail that’s wearing sunglasses, or no, the tax tail lead the dog, the investment dog that’s wearing sunglasses. ⁓ We’re talking about number one priority when it comes to the actual strategy around tax efficient investing, a good chunk of that, Rabih, you’re saying about 50 % or more, I’d say, comes down to your behavior. Things like your holding period being a good example of that. ⁓

Rabih: You

Matt Mulcock: The other big chunk of this, you’re you mentioned maybe 30 % of it. ⁓ we’re giving, you know, broad ranges here.

Rabih: Yeah, those numbers aren’t accurate, the scale between them, the ratio is what matters.

Matt Mulcock: Yeah, that’s, there you go. That’s the, it’s the pie we’re talking about. So majority of it being a good chunk of it being your behavior. Another big chunk of it being location, right? Just where you’re holding the actual investments, a smaller piece being, ⁓ the types of investments that you’re choosing. And then the last piece, the cherry on top, as you said, are these optimization type techniques, anything you’d add to that summary.

Rabih: No, and this is not an easy feat. If you do them all, you’re one of the best investors out there.

Matt Mulcock: Yeah. Yeah. And, and again, that’s what it can lead to a difference of one to 3 % each and every year, just on these, these things. And I love that you emphasize that things that are in your control. ⁓ this is great. This is really great, Rabih. ⁓ the other thing I’d add, if we talk about tax and we’re just going through this, it’s kind of just came to me. I want to see if there’s a, this is a thread worth mentioning or pulling on as they say, is the maybe underrated like tax on effort or effort tax of actually putting this in place. Like this is a lot to keep him to, focus on and to manage. So there’s, there’s kind of this like, don’t doesn’t show up on the balance sheet of the investment returns, but the effort tax is also a big part of this too.

Rabih: It is my full-time job to look at these stuff. So if you want to add another full-time job to your full-time job, be my guest.

Matt Mulcock: That’s true. This is true. I always see Rabih running around the office with this like this is chicken with his head cut off. But ⁓ this is great, Rabih. I’m really glad we did this. Any other final words of wisdom you want to add to tax efficient investing topic?

Rabih: You actually, I’d want to zoom out because I think it’s important because all of this that we’ve talked about was tax efficiency within public markets, right? But then there’s tax efficiency for real estate, which is a big thing. But the one we care more about, I’d say more than the public markets, is tax efficiency in your practice and what dentist advisors does there, right?

Matt Mulcock: Yeah. Yeah, huge. So let’s go for the next hour and talk about it. I’m just kidding. ⁓ maybe we’ll do a part two. ⁓ that’s really good. I’m glad you mentioned that. okay. Well, if you’re still here and listening, you’re one of the cool ones. We appreciate you for letting Rabih and I crash the main show together. ⁓ if you are listening to this and you want to talk to us and you want to talk about, if you’re out there thinking, man, I don’t know what I’m doing with my investments. I need help. and maybe not investments, maybe it’s.

Rabih: Hahaha

Matt Mulcock:  Man, I don’t know where my money’s going. I’m making a bunch of money and I don’t know where it’s going and I need help getting organized. Whatever it may be in your financial life, we are here to help at Dentist Advisors. We’d love to talk to you, hear your story, see how we can help. You can go to dentistadvisors.com click on the book free consultation button right there on the homepage. And again, we’d love to talk to you. For now, Rabih, thanks for being here and sharing your words of wisdom. Everyone, thanks for listening. Till next time. Bye bye.

Keywords: investing, wealth management, after-tax returns, financial priorities, tax minimization, tax efficient investing, tax-loss harvesting, taxes, portfolio

Investing, Taxes