Your Path to Personalization
You’ve worked hard to get to where you are—but in the face of creeping inflation, market ups and downs and unexpected turns in life, you need a way to protect your portfolio.
The good news? An effective, tailored investment strategy can give you the confidence and help steer you on your own path to a financial future driven by science, not guesswork.
A Strategy That Begins with You
We’ll consider your entire financial situation, identify your objectives and income requirements, existing investments and account types, and work to understand your ability, willingness and need to take risk, in order to tailor your plan to your current and long-term needs.
Ultimately, you should feel confident in your broader investment strategy and portfolio—through the inevitable ups and downs in the market. By considering the entirety of your situation, we can tailor a solution that requires the least amount of risk to achieve your financial objectives, all while applying the rigorous thinking from financial science to your plan.
Where Science Meets Your Financial Plan
We utilize a tax-sensitive planning process to analyze existing accounts, income, tax implications and current holdings. Your portfolio can be personalized across investments, values and a variety of types of risk.
Risk can mean something different to everyone, however. Some people fear market declines and portfolio losses. Some don’t want to see their portfolio underperform an index. And others fear not having immediate access to the entirety of their portfolio.
That’s why your preferences matter—we will build a portfolio that considers your perspectives for these types of behavioral risks. After all, there’s no sense taking risks when you don’t need to.
Existing Accounts
We’ll design a plan optimized around your existing account types including taxable, tax-deferred, tax-free, annuity, bank, 401k, college savings, executive compensation and RSUs/stock options.
Existing Holdings
If you have concentrated stock, low tax-basis positions or other holdings that cannot or should not be sold, we’ll develop a plan that complements those existing assets.
Income Sources
For those approaching retirement, we’ll design the managed portfolio to account for income from other sources such as pension, rental property and other income-producing assets.
Tilt
Financial science teaches us that tilting to companies with certain characteristics such as size, style and quality may enhance returns. For those comfortable with a stock portfolio that performs different from headline indexes, such as the S&P 500, we can help you increase the amount invested in these companies to improve your potential for higher returns.
Alternatives
Alternatives may add another source of risk and return to a portfolio. Although these strategies are accretive to the portfolio’s steadiness and return, each strategy is subject to substantial declines and, in some cases, limits to how much and how often you can withdrawal your money.
Values
We help many clients incorporate Environmental, Social and Governance (ESG) concepts as well as faith-based views into their portfolios. We can help you explore the options and investment trade-offs of expressing your values in your portfolio.
Investment Type
Whether we’re using mutual funds, ETFs or separately managed accounts (SMAs), different investment vehicles can impact your taxes and strategy. We’ll help you figure out which approach is most appropriate for your circumstances.
Manage Tomorrow’s Taxes Today
Different investments have different tax treatments, and withdrawals from different investment accounts are taxed differently as well. By putting tax inefficient investments, such as bonds and alternatives, into more tax-efficient accounts, such as an IRA, we can potentially reduce your tax burden. We call this Asset Location.
Often overlooked, we utilize this strategy to determine which assets should be held in tax-advantaged vs. taxable accounts to help maximize the after-tax returns of your whole portfolio. Taxes are inevitable, but there’s no sense paying more than your fair share.
- Stocks
Stocks tend to lose less money to taxes than other asset classes. Although different styles, regions and vehicles can be taxed differently, dividends and capital gains from the sale of stocks typically have the most favorable tax treatment. - Bonds
High-quality bonds make frequent interest payments. Although this can create a reliable stream of income, with the exception of municipal bonds, most bond payments are taxed as ordinary income. - Alternatives
Although a potential source of return in the portfolio, alternatives tend to include distributions that are at least partially taxed at ordinary income rates.
Taxes Matter. Don’t Overpay.
Traditional Placement
Traditional asset location uses the same single allocation across all accounts.
Strategic Asset Placement
Strategic asset location is a tax-aware investment approach that better aligns your investments within your accounts. Although each individual account will have different performance with this strategy, this approach can improve the after-tax returns for your whole portfolio. Find out how we score asset classes.
$500,000 IRA Account
Money in an IRA has not been taxed yet but withdrawals will add to your income taxes. Therefore, income-producing assets, such as bonds and alternatives, are best to hold in tax-deferred IRA accounts for better current-year income control and more steady income for Required Minimum Distributions.
$200,000 Roth Account
Money in a Roth has already been taxed and withdrawals will not generally impact your current year taxes. Roth accounts are a great way to hold both high tax investments, such as bonds and alternatives, or high growth assets, such as stocks.
$300,000 Taxable Account
Stocks and other tax-favorable assets are typically held in a taxable account since they are less likely to produce income and could benefit from a step-up at passing.
Assessing Taxation of Asset Classes: How Do We Get There?
We review the tax efficiency of funds representing multiple asset classes and rank them based on the percent of the return lost to taxes. We then use this information to inform which investments are the best candidates to fill your tax-advantaged accounts.
- Tax-Free Municipal bonds are typically the most tax efficient since the interest payments are exempt from federal taxes.
- Total Stock Market funds have been more tax efficient than funds that target specific asset classes since they have lower turnover and lower realized capital gains.
- U.S. Stocks can be more tax efficient than international given the higher fraction of qualified dividends.
- REITs typically have a higher dividend yield and can make non-qualified dividend payments, which are usually taxed as ordinary income.
- Bonds are usually not tax efficient since the interest payments are usually taxed as ordinary income.
- Alternative strategies can make large distributions that are usually taxed as ordinary income, making them good candidates for tax-advantaged accounts.
- Municipal Bonds
- U.S. Total Market Funds
- U.S. Large Company Funds
- Global Stock Funds
- International Total Stock Market Funds
- International Large Company Funds
- Emerging Market funds
- U.S. Large Value funds
- U.S. Small Company funds
- U.S. Small Value funds
- International Large Value funds
- International Small Company funds
- International Small Value funds
- REITs
- U.S. Short Government Bonds
- Global Short Bonds
- U.S. Government Bonds
- Global Bonds
- Inflation-Protected Bonds
- Commodities
- Other Alternatives
How an Asset Location Plan Can Make a Meaningful Difference In Your Taxes
To illustrate the power of asset location, a hypothetical $1 million portfolio allocated strategically, with $500,000 invested in stocks and $500,000 invested in bonds, would provide an additional $46,000 in value (after-tax) after 10 years compared to a portfolio that uses the same allocation across all accounts.
Disclosure
The two scenarios have the following assumptions: $500,000 in taxable assets, $500,000 in tax-deferred assets with a marginal tax bracket of 35% and a capital gains rate of 15%. The taxable bond’s hypothetical assumed return is 3% and the stock assumed return is 7% (including annual dividend return of 2%, a 1% long-term capital gain distribution and 4% unrealized gain). The portfolios are 50% stocks and 50% bonds, all dividends are assumed to be qualified and no rebalance has occurred. In the Strategic Asset Placement Scenario, stocks are held in taxable accounts and taxable bonds in tax-deferred accounts. After 10 years, based on the previous assumptions, this scenario has a balance of $1,339,179. In Traditional Asset Placement Scenario, both the taxable and tax-deferred accounts include a $250,000 allocation to stocks and a $250,000 allocation to bonds. After 10 years, based on the assumptions above, this scenario has a balance of $1,292,509. A difference of $46,669. The chart reflects the after-tax, post liquidation value of each portfolio, which is the value of the portfolio assuming that both accounts are completely liquidated and withdrawn at the end of each year.
One Portfolio for Your Life
We work to create an investment plan to fit your long-term needs and risk profile, structuring your portfolio along the dimensions of expected return, using our investment methodology backed by over 70 years of peer-reviewed financial research and market studies.
By personalizing your plan, we can also expand your potential benefits, including minimizing your tax burden. To reduce the amount of wealth eroded by taxes over your lifetime, your advisor will help recommend and implement an overarching tax plan tailored to your individual investing goals.
Ready to find your portfolio?
Contact your advisor to take the next step, and start your journey using financial science, not guesswork.
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