Opening your brokerage statement these days is like jumping into an icy lake: Your heart races, your eyes widen and you wonder why you ever took the plunge.

But despite the turmoil in the financial markets, there's one foolproof way to protect some of the hard-fought gains in your taxable accounts: Go tax-efficient. Many investors see 40% of their annual returns chewed up by taxes, experts say.

"In principal, tax-efficient investing is structuring your portfolio to minimize taxes," says Louis Kokernak, a financial planner with Haven Financial Advisors in Austin, Texas.

Fortunately, offerings from big-name mutual fund companies such as Vanguard and Fidelity make it easy to lower the tax exposure in your taxable portfolio. And while these tax-efficient funds may not help you avoid a drubbing when the S&P 500 plunges, they will keep you from seeing even more of your returns disappear into Uncle Sam's pocket.

How do they work?

Strategies vary from fund to fund, but the primary objective of portfolio managers like Michael Buek, who runs Vanguard Tax-Managed Capital Appreciation ( VMCAX), is to avoid triggering capital gains that get passed on to shareholders.

One common way managers keep capital gains low is to reduce portfolio turnover, or how often holdings are bought and sold. Since capital gains only come with the sale of a winning stock, low turnover goes a long way in lowering your tax exposure. Buek, for example, buys and sells an average of just 5% of his fund's holdings every year. Many funds' annual turnover is well over 100%.

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