By Solomon G. Teller, CFA, Chief Investment Strategist, Green Harvest Asset Management
“Transitory”, the latest market buzzword, can be a good thing especially if it accurately describes recent signs of higher inflation. There are lots of things we’d like to be temporary, not the least of which is portfolio transitions. With many stocks, bonds and real estate prices near record highs, some investors hold appreciated positions that they’d like to rebalance in order to reduce risk and better reflect their goals. Unfortunately, immediate or uninformed selling can lead to large tax consequences.
Enter the tax-sensitive portfolio transition. As the diagram below shows, assets from a legacy portfolio may be
efficiently transitioned to a diversified portfolio, one designed to target current risk and return goals.
This strategy, from green Harvest Asset Management, may produce tax benefits that can then be used to offset gains realized from selling those legacy positions. And as they are sold, the proceeds can immediately be added back into the Green Harvest Strategy, thus providing additional sources of tax benefits. This virtuous cycle continues until the transition is complete and all desired legacy positions have been reallocated or rebalanced into the more tax-efficient strategy.
Tax sensitive portfolio transitions are another way tax beneficial investing can facilitate investment goals. Talk to us to learn more.
Disclaimers:
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when the portfolio is liquidated. Current performance may be higher or lower than that quoted. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index.
GHAM does not provide tax advice. Although GHAM does not employ a Certified Public Accountant on its staff, we have, and continue to work with outside accounting firms and outside tax counsel that provide ongoing guidance and updates on all relevant tax law. Federal, state and local tax laws are subject to change. GHAM is not responsible for providing clients updates on any changes in tax laws, rules or statutes.
Reasons to harvest capital losses, sources of capital gains and the suggestion that mutual funds distribute capital gains are for example purposes only and not meant to be tax, estate planning or investment advice in any form or for any specific client.
All performance and estimates of strategy performance, after tax alpha, after tax alpha opportunities and other performance figures are derived from data provided from multiple third-party sources. All estimates were created with the benefit of hindsight and may not be achieved in a live account. The data received by GHAM is unaudited and its reliability and accuracy is not guaranteed.
The availability of tax alpha is highly dependent upon the initial date and time of investment as well as market direction and security volatility during the investment period. Tax loss harvesting outcomes may vary greatly for clients who invest on different days, weeks, months and all other time periods.
All estimates of past returns of broad, narrow, sector, country, regional or other indices do not include the impact of advisor fees, unless specifically indicated. Past performance and volatility figures should not be relied upon as an indicator of future performance or volatility.
This material is not intended to be relied upon as legal, investment or tax advice in any form or for any specific client. The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person. All investments carry a certain degree of risk, and there is no assurance that an investment will perform as expected over any period of time.
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