Just like wealth inequality, different asset classes have tax inequality. That is to say, different asset classes are taxed at different rates depending on what they are and how long they are held. As investors, we want to maximize our returns. Limiting the amount of taxes we pay on our returns is one way of doing so.
That’s why tax efficient investing is so important. If you are not investing tax efficiently, you are basically giving away your hard earned money to the government. However, in order to understand tax efficient investing, we need to first learn how investment income is taxed.