Written by William Lesik and Tom Bratkovich

Tax-efficient investing can be a crucial yet often overlooked investment strategy for maximizing long-term wealth accumulation. Traditional investment analysis and strategy focus on pre-tax returns and typically ignore the negative impact taxes may have on overall returns and long-term wealth accumulation. Failing to consider after-tax performance can significantly erode investment gains over time. In prior publications, we introduced a framework for tax-efficient investing in private markets, emphasizing risk-adjusted after-tax returns, standardized tax impact metrics, and the concept of Tax Alpha.

This paper takes a deeper analytical approach to defining various return metrics in tax-efficient investing and provides concrete examples of how investment returns may be calculated through a tax efficient lens using Tax Benefit Harvesting. The objective is to provide a “common yardstick” for measuring returns for investments with varying degrees of tax efficiency and comparing them to non-tax-efficient investments. The methods outlined herein may be used across the investment spectrum, from public stocks/bonds to private markets (private equity, private credit, real estate, infrastructure, etc.). Ultimately, investment decisions may be made with a greater degree of analytical rigor using the tools described herein to understand true after-tax dollars retained by investors.