Displaying items by tag: tax

Despite the sharp market sell-off, financial advisors say the downturn could present timely tax planning opportunities. Tax-loss harvesting—selling underperforming assets to offset capital gains or reduce taxable income—has become a key strategy as investors navigate recent volatility. 

Certified financial planner Sean Lovison emphasizes this as a way to find a “silver lining” amid losses, especially since excess losses can be carried forward into future tax years. Roth IRA conversions are also gaining attention; converting traditional IRA funds during a dip allows for potential tax-free growth once markets rebound, though timing and tax implications must be carefully considered. 

Additionally, the window to contribute to a Roth IRA for 2024 remains open until April 15, offering a chance to buy in at lower asset prices while securing future tax-free retirement growth. 

While losses sting, this environment may reward those who act decisively on smart financial strategies.

ETFs are generally more tax-efficient than mutual funds, potentially making them a better vehicle for delivering alpha in taxable accounts. Active ETFs combine the adaptability of active management with the tax advantages of ETFs, as only 16% of active ETFs have distributed capital gains in the past five years, compared to 53% of active mutual funds. 

The ability to defer capital gains through in-kind redemptions can significantly reduce tax costs, allowing for better compounding of returns over time. Tax efficiency plays a critical role, especially in strategies like active equities, where minimizing taxable distributions has a notable impact on performance. 

Evaluating active ETFs involves assessing the manager’s skill, the market’s alpha opportunities, and the investor's ability to select and stick with quality managers. Incorporating active ETFs into a portfolio requires careful consideration of the fund's exposure, risk profile, costs, and long-term performance.

Finsum: Thinking of tax as alpha is really the correct quantitative approach that gives a holistic view of your portfolio.

Donald Trump’s intention to introduce new tariffs on China, Canada, and Mexico starting on his first day in office is expected to spark significant turbulence in the currency markets, with experts warning that the impact on exchange rates could be far-reaching. 

He revealed plans on Monday to impose a 25% tariff on imports from Canada and Mexico, a move that might violate an existing trade agreement, as well as an additional 10% levy on Chinese goods. These announcements quickly triggered sharp movements in the markets, with the U.S. dollar climbing against both the Mexican peso and the Canadian dollar.

Goldman Sachs advised investors to prepare for increased volatility in the foreign exchange markets, suggesting that such fluctuations could persist for an extended period due to the likelihood of tariffs remaining a key aspect of Trump’s strategy.

Finsum: Although Trump’s recent tariff announcements were lower than anticipated they could very well end up much different than the current announcement.

Commonwealth Financial Network is enhancing its advisor platform with new tax-focused tools to improve efficiency and meet clients' evolving needs. This suite includes advanced planning solutions such as direct indexing, portfolio tax optimization, and unified managed accounts, providing advisors with tailored options for optimizing client portfolios. 

In 2025, advisors will also have access to a managed CTO service to streamline technology management, allowing them to focus more on client relations. Additionally, tools like the tax transition feature and automated tax-loss harvesting will support tax-efficient investing for clients. 

These upgrades are positioned to enable advisors to scale their businesses and better serve clients, particularly those with sophisticated financial needs.

Finsum: These types of innovations in wealth tech can vastly improve advisors options particularly with tax solutions.  

Direct indexing allows investors to access the individual stocks in their portfolio, providing opportunities for tax-loss harvesting. Unlike index funds, direct indexing offers the performance and diversification benefits of an index but with the ability to customize holdings. 

This strategy enables investors to manage exposure to specific companies or sectors and capitalize on market dips for tax-loss opportunities. While index funds offer simplicity and tax efficiency, direct indexing takes these benefits a step further by allowing more personalized portfolio adjustments. 

However, setting up a direct indexing account can be costly and involves higher fees due to its active management. Despite this, the customization and tax benefits can be worthwhile for certain investors, especially those in higher tax brackets or with concentrated stock positions.

Finsum: With fees and minimums getting lower and lower, direct indexing is becoming an option for a wider audience.