Tax optimization and reduction business concept. Businessman try to compress text tax, wide banner composition with bokeh in background.

Tax-Efficient Portfolios Do Not Just Happen: It Takes Strategic Planning

Here at LNWM, tax-efficiency is an emphasis for all the portfolios we manage, and that’s been the case for decades. One of the asset managers we invest with — Seattle-based Parametric — specializes in creating tax-efficient portfolios, adding incrementally to long-term returns by keeping annual taxes low. In its blog, Parametric this week had a great post about tax-loss harvesting and why this strategy is not a panacea and can actually backfire if not used properly. The post was written by Brian Langstraat, CEO of Parametric, someone we know well and have worked with for a long time.

The fact is that many investment platforms, including online robo-advisors, do not focus on after-tax returns. Investing for after-tax returns is a thoughtful process that requires knowing your client well and staying up to date on their circumstances, something robo-advisers struggle with. That is too bad because year-in, year-out taxes can take a big bite out of profits. By striving to maximize after-tax income while minimizing or deferring capital gains taxes, you can enhance returns without taking on additional risk.

While the investments in our portfolios will have varying returns over time, we can count on tax planning to allow more of what we earn to flow through to our clients’ bottom line.

For more, get LNWM’s e-book on tax strategies for building, accessing and transferring wealth.