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.
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.
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.
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 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.
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.
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.
Taxes Matter. Don’t Overpay.
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.
Tax Scoring Methodology
- 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
- U.S. Short Government Bonds
- Global Short Bonds
- U.S. Government Bonds
- Global Bonds
- Inflation-Protected Bonds
- Other Alternatives
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.