Judging from the amount of media attention devoted to beating the market, you’d think that nothing in the world of investing is more important. Another, less sexy, but equally important element of good investing stems from smart tax management.  It can have great effect on a family’s overall wealth, and unlike market performance, tax planning is an area where outcomes can be actively controlled.

One strategy to increase after-tax return without increasing risk is called tax-loss harvesting. While the premise is simple, the execution can be tedious, unless it’s done for you. A tax-loss harvesting strategy can neutralize the taxes on realized gains by selling portions of the portfolio that are down and replacing them with appropriate substitutes. Employing this strategy, the portfolio always remains invested at the same risk level, while taking advantage of the market’s ups and downs to reduce  your annual tax expense.

So if tax loss harvesting is so great why don’t you hear more about it? Though the practice has been around for a long time it’s traditionally only been practiced by self directed or high net worth investors. The other reason is that much of wall street is set up to sell products – like investments and insurance – on which they can earn significant fees. Tax-loss harvesting,  while beneficial for many, just isn’t as lucrative for the industry.

Through our partnership with Betterment Securities, whose been called the “Apple” of finance for its customer friendly interface and quality offering, we build and manage tax-efficient investment portfolios on behalf of our clients using Vanguard and iShares exchange traded funds (ETFs), with *automated tax-loss harvesting included.

*Automated tax-loss harvesting is available in Betterment portfolios upon your request.  Please note – while it can be beneficial for many, for some investors, including those in the 15% tax bracket or lower it is typically not recommended.  Want to see if adding tax-efficient strategies can help you add after-tax return to your portfolio, without additional risk? Give us a call.

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