S Share 7 Tax-Managed Model Strategies eKit - Q320

3 Compounding power Taking a long-term view designed to help maximize after-tax wealth With a hypothetical view, you can see how reducing tax drag can impact an investor’s ending wealth. Consider the hypothetical growth of a $500,000 portfolio over 10 years at a 7.5% return each year. If the portfolio’s pre-tax return had a 2% tax drag, that portfolio would have an ending value of just over $850,000. With no tax drag, that portfolio would have an ending value of $1 million. In 20 years, the difference in ending value would be even more: A portfolio with 2% tax drag would be worth nearly $1.5 million, while a portfolio with no tax drag would be worth more than $2.1 million. At Russell Investments, we believe it’s important to take a long-term view when building wealth. At the heart of this belief is the power of compounding returns. And maximizing after-tax returns can play a big role here. Since investors don’t pay taxes until they realize gains, deferring taxes into the future has the potential to significantly compound returns over time.

Hypothetical growth of $500,000 over 20 years at 7.5% return per year

20 Years

$2,124,000

No tax drag

Ending wealth difference in 20 years: $665,000

$1,762,000

1% tax drag

$1,459,000

10 Years

$ 1,031,000 (No tax drag) $ 939,000 (1% tax drag) $ 854,000 (2% tax drag)

2% tax drag

Initial investment: $500,000

0 2 4 6 8 10 12 14 16 18 20 Years 1 3 5 7 9 11 13 15 17 19

Note: This is a hypothetical illustration and not meant to represent an actual investment strategy. It does not reflect fees or other expenses. Taxes will likely be due at some point, they could erode returns, and tax rates could be different when they are. Tax drag is the reduction of potential investment returns due to taxes.

Three reasons to consider Russell Investments’ Tax-Managed and Tax-Exempt Solutions  / Russell Investments

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