With tax season coming up, many investors are looking for ways to maximize returns in their taxable investment accounts. Reddit forums like r/investing are filled with discussions around which investments make the most sense within taxable accounts held places like Fidelity. The key considerations tend to focus on tax efficiency of various asset classes and investment vehicles. For example, municipal bonds and ETFs tracking stock indices tend to be more tax efficient than individual stocks or actively managed mutual funds. Those new to investing should focus on educating themselves on concepts like capital gains taxes, qualified dividends, tax loss harvesting, and tax efficient asset location. Understanding these key concepts will allow investors to hold the right mix of assets in taxable accounts versus retirement accounts. Overall, taxable account investors need to balance returns, risk, and tax efficiency to grow their wealth.
Municipal bonds and bond funds are tax-efficient vehicles ideal for Fidelity taxable accounts
One of the most popular recommendations for taxable accounts on Reddit is to utilize municipal bonds and related bond funds. The key advantage is that income from municipal bonds is exempt from federal taxes and sometimes state/local taxes. This differs from corporate bonds which create taxable income. Top muni bond funds include those tracking state-specific bonds or national muni bonds, providing diversity of holdings. Leading options on the Fidelity platform include Fidelity Intermediate Municipal Income Fund (FLTMX) and Fidelity Municipal Income 2021 Fund (FMLGX). Investors in higher tax brackets benefit the most from municipal bonds.
Index funds and ETFs tracking major stock benchmarks optimize taxes within Fidelity brokerage accounts
Beyond municipal bonds, most Reddit contributors recommend tax efficient equity index funds or ETFs for Fidelity taxable accounts. The key advantage is minimizing capital gain distributions versus actively managed mutual funds. Popular index fund options include Fidelity ZERO Total Market Index Fund (FZROX) or Fidelity 500 Index Fund (FXAIX) which track broader markets. ETFs like Vanguard’s S&P 500 ETF (VOO) are another great option. Avoiding individual stock picks prevents higher short term capital gains taxes. Overall index funds and ETFs are simple, diversified, low fee, and tax efficient.
Use other advanced tactics like tax loss harvesting to further optimize Fidelity taxable investment returns
Once an investor understands basic tax efficient investing, additional tactics like tax loss harvesting can optimize after-tax returns. This involves selectively selling holdings at a loss to offset realized capital gains and reduce tax liability. Investors can sell losing positions in taxable accounts at Fidelity, then repurchase similar assets to maintain their target asset allocation while capturing the loss for tax purposes. Software tools now exist to streamline identifying these tax loss harvesting opportunities. Deferred annuities and other tax advantaged insurance products also potentially play a role for more sophisticated investors. The key is understanding taxes and seeking to legally minimize them.
In summary, focusing on municipal bonds, index funds, and ETFs enable investors to build tax efficient portfolios at leading brokerages like Fidelity. Understanding key concepts around capital gains, qualified dividends, and tax loss harvesting allows further optimization. Always consult qualified tax and financial advisors when assessing taxable investment account strategies.