If your tax bill was an unpleasant surprise this year, I suspect I know why. I also know how you can reduce it starting this year: change your investing strategy.

In a good year for the stock market (large US stocks produced a 12% return in 2016), an "active" trading strategy will generate a lot of taxable gain. An example: the two largest "active" mutual funds, Fidelity Contrafund and American Growth Fund, sold about 1/3 of their portfolio in 2016, creating a big and unnecessary tax bill for owners. The end result: a 1% lower return than advertised. Most of the client statements we see from Wall Street banks have an even higher level of activity, lowering net returns even more. And if you own a hedge fund ... well, the IRS should send a thank-you letter as one of their best customers.

By contrast, the funds we recommend -- which have very little trading activity -- have historically beaten their indices with a far lower tax bill. An example: our go-to US stock fund had a calendar return of 14.8%, and a tax payer lost only 0.5% of that to tax. There was virtually no trading; almost all the tax bill came from dividends.

For money in an IRA or 401(k), tax doesn't enter the equation. But for your brokerage accounts, pay attention to after-tax returns, not pre-tax returns. You will quickly conclude that low-fee, low-activity funds are the way to build long-term wealth.