Every dollar you don't pay in taxes is a dollar added to your after-tax investment returns.
While not all taxes can be avoided, some can, while others can be deferred or reduced through efficient tax management. AlphaGlider works to defer, reduce, and eliminate taxes for its clients through:1
Tax Sensitive Asset Location
Bring us both taxable and tax-advantaged funds and we will strive to build out your investment portfolio in a tax-optimized manner. We put tax-inefficient funds,2 such as those with high dividends and high capital growth potential (e.g. high-yield bond, real estate, and emerging markets bond and equity funds) in your tax-advantaged accounts (e.g. IRAs & 529s) so that they can compound tax-free. Your portfolio's more tax-efficient funds will be owned in your taxable accounts. Vanguard research (pg. 18) has shown that properly executed asset location strategies can add up to 0.75% of additional after-tax return each year, depending on one's mix of taxable and tax-advantaged funds, marginal tax rate, and overall asset allocation.
Tax Loss Harvesting
AlphaGlider utilizes tax loss harvesting strategies in combination with specific tax lot identification to minimize and defer your tax payments. We monitor opportunities to realize capital losses in your taxable investment account in order to offset your taxable capital gains, and potentially a portion of your ordinary income.
Upon selling a security that has a capital loss, we replace it with another security that will behave similarly, buy not substantially identically, to the security we sold so as to maintain your portfolio's optimal asset allocation. After the 30-day wash sale period expires, we then swap back to the original security.
We are active investors, not frequent investors. Our low turnover, long-term investment approach reduces the realization of capital gains in taxable accounts, and trading commissions in all types of accounts.
Our low turnover mantra extends to our choice in investment vehicles — index funds. Most index funds have low turnover, thus lowering the level of taxable dividends that they are forced to distribute to their owners.