Seeking Tax Alpha: The market may be down, but its full of opportunities for harvesting deductions on losses as part of a larger money management strategy

Investors are currently facing the fourth most volatile period in stock market history. It is the most volatile market since the 1938 depression. In addition, we are evidently in a recession. Tax alpha is the improvement of portfolio returns created by sound tax management: strategically harvesting...

Full description

Saved in:
Bibliographic Details
Published in:Financial planning (Atlanta, Ga.) Ga.), 2008-09
Main Author: Phoenix, John
Format: Magazinearticle
Language:English
Subjects:
Capital gains
Capital losses
Costs
Dow Jones averages
Economic impact
Investments
Portfolio management
Recessions
Risk exposure
Stock exchanges
Tax planning
Volatility
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Investors are currently facing the fourth most volatile period in stock market history. It is the most volatile market since the 1938 depression. In addition, we are evidently in a recession. Tax alpha is the improvement of portfolio returns created by sound tax management: strategically harvesting stock losses for tax deductions by selling depreciated stocks at opportunities as they occur. Losses can be used to offset capital gains, ultimately generating tax alpha. Too often, portfolio managers focus on year-end tax-loss harvesting. When trading for tax alpha, there are multiple factors to consider. These include correlations between stocks in the existing client portfolio and target portfolios used to present trading options to improve returns. Managers can consider the stocks in the target portfolios according to the tax implications of potential trades and their risk characteristics relative to stocks in the client portfolio. Another overlooked area in the quest for tax alpha is transition costs, which are defined as the costs of getting out of one stock and into another. These include trading and management costs. Tax-harvesting and transition-cost strategies can be effectively dovetailed within a comprehensive overlay strategy that assesses existing portfolios against model portfolios to produce target portfolios.
ISSN:0746-7915