The U.S. has seen lowering inflation, stable growth, and a resilient labor market. However, that doesn’t mean we’re out of the woods just yet when it comes to a possible recession.
Vanguard forecasted late last year that a recession was imminent in 2023. Now that we’re at the mid-year point, the asset manager still believes that an economic downturn is on its way. It just may not happen this year.
Vanguard’s Midyear Economic Outlook noted that the U.S. economy has seen stable growth at around 2% annualized. That said, the asset manager still assigns “a high probability to a recession.” However, “the odds have risen that it could be delayed from 2023 to 2024.”
“We expect continued progress in the fight against inflation,” Vanguard wrote. “And with that, we anticipate some economic weakness in the months ahead.”
Harvest Tax Losses With Direct Indexing
For ultra-high-net-worth investors worried about an impending economic downturn, tax-loss harvesting may be a strategy worth considering. Tax-loss harvesting is when underperforming securities are sold at a loss to offset gains made elsewhere in the portfolio. The proceeds from that sale can then be used to invest in similar investments.
Direct indexing strategies like Vanguard Personalized Indexing offer huge tax-loss harvesting opportunities for UHNW investors. Advisors can automatically scan portfolios for tax-loss harvesting opportunities at a set frequency. That frequency can be monthly, quarterly, or even daily.
The frequency at which the portfolio is scanned matters. The more frequent the scans, the higher and more consistent the tax-loss harvesting alpha. The differences in tax-loss harvesting alpha can be very wide. Research from Vanguard found that the difference can range from 20 basis points to more than 100.
Vanguard CEO Tim Buckley said at Exchange 2023 that the company will “be investing heavily” in direct indexing. More information about VPI can be found online.
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