The taxes you pay on gains in your portfolio can significantly impact overall returns. But with an effective strategy in place—one that underscores the importance of evaluating tax implications in investment decision-making—you can substantially limit the potential long-term impact of taxes.
Tax-managed Mutual Funds or ETFs are one solution—however, they may not offer enough customization for larger portfolios.
Direct Indexing is another solution that allows for more flexibility around tax loss harvesting (pairing losers and winners in your portfolio to reduce taxable gains). Unfortunately, the tax benefits of Direct Indexing typically disappear after four to five years. After that time, you can’t extract any additional tax savings from your portfolio, and it becomes “frozen.”
For larger portfolios and more complicated situations—such as diversifying a concentrated stock position with high embedded gains—using the power of the Symmetry Tax Alpha Program may be the best solution.
What Is Tax Alpha?
Tax Alpha is the potential value generated by managing potential capital gains on your investments using sophisticated strategies.
Taxes often inhibit investment success. Depending on your tax bracket and where you live, long-term capital gains taxes could be as high as 40.8%, turning $1 million in gains into $592,000 (after you pay $408,000 in taxes).
“Taxes implications directly impact investors’ financial decisions. We encourage financial advisors and their clients to bear that in mind when they’re formulating financial plans for their clients,” explains JT Lavery, Associate of Sales at Symmetry Partners. “Tax Alpha can be a great strategy because it simply puts more money in clients’ pockets.”
To address these tax management challenges, Symmetry Partners has developed an innovative Tax Alpha Program that can solve the problem of “frozen” portfolios and provide 15, 20, or even more years of tax savings.
The program can also address:
Highly appreciated taxable accounts
Concentrated portfolios (i.e., company stock)
Minimizing the tax cost of transitioning to another portfolio
The ongoing need to minimize capital gains
How It Works
The unique use of margin to borrow cash from your account using stocks, bonds, ETFs, or other assets as collateral is fundamental to all Tax Alpha strategies.
We use this borrowing power to build an extension that’s typically 30% of account value long and 30% of account value short (though these percentages can vary, depending on what you are trying to achieve, and how quickly). The long and short positions comprise hundreds of individual stocks different from any others you currently hold.
As markets continuously fluctuate and these hundreds of stocks rise/fall, we use a systematic process focused on harvesting tax benefits.
Because some long stocks decline when markets fall and some short stocks decline when markets rise, this long/short approach may allow for more consistent tax benefits year after year than typical tax loss harvesting.
Even after fees and expenses, typical tax savings range from 2% to 4% each year.
Tax Alpha Program Options
Core – Core Equity + Tax Benefits Portfolio of individual stocks managed to minimize risk with strong, consistent tax benefits
Overlay – Utilize Existing Holdings Uses your current portfolio to generate ongoing tax benefits
Legacy – Transition Legacy Holdings Transitions your current portfolio to a new portfolio in a tax-efficient manner.
Exchange – Concentrated Stock Diversification Tax-efficiently diversifies one to a few equity holdings into a more diversified stock portfolio