One ETF supervisor’s recommendation for navigating an period of potential tax hikes

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Watch the market and control what you can control.

That’s what Gerard O’Reilly, co-CEO of Dimensional Funds, tells his clients as the Biden government is considering raising taxes on capital gains, businesses and the wealthy, a move that could impact tax-managed investment strategies like Dimensional’s.

The most important thing for investors to consider is the market’s reaction to potential tax hikes, O’Reilly told CNBC’s “ETF Edge” this week.

“If the market perceives that something will lower future cash flows to investors or raise discount rates, it will have an impact on prices,” said O’Reilly, also his company’s chief investment officer, in the Monday interview.

Since such expectations are often already baked into market prices, the most constructive approach is also the simplest, said O’Reilly: “The price is forward-looking. Don’t worry. Go ahead.”

Fund managers, investment advisors and retail investors also need to remember what they have under their control in changing market landscapes, the CEO said.

“You need to look at tax law at this point and then make sure you have the flexibility to maximize after-tax returns,” said O’Reilly.

There is a lot you can do to maximize your after-tax return, whether it’s managing dividends, rebalancing … or the type of distributions you get from funds, ”he said allowing you to adapt to changing tax regulations over time to ensure that you, the investor, get the most of it regardless of tax number. “

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