From a high-level perspective, the advantages of tax efficient investing are obvious: if you consider how income taxes will reduce the gains and cash flow that an investment account generates, you can theoretically develop an investment portfolio that generates larger net returns. Investment advisors who apply this principle uncritically to individual investment components, however, can miss big opportunities that become apparent in the greater context of an investor’s entire portfolio.

 

The 6th Avenue Team approaches tax efficient investing from a global perspective that accounts for this mix of components in a client’s portfolio. We will not recommend any specific investment solely because that one product offers tax advantages. Rather, we will develop an investment plan for you that matches your immediate and long-term needs, and one that reflects tax efficiency as part of its overall structure.


What is Tax Efficient Investing?

Professional investment advisors look at many different strategies when they incorporate tax efficient investing principles into a plan:

  • Selection of investment products. This includes, for example, considering the benefits of exchange traded funds (ETFs); investigating whether tax-free bonds offer advantages over other debt instruments; and balancing products that emphasize cash flow with others that aim for long-term growth.
  • Timing of buying and selling. Investment products that are held for longer periods of time might qualify for lower capital gains tax rates. On the other hand, selling an underperforming asset before the close of the tax year might produce losses that can be used to offset gains. Further, an investor who owns a fund on a record distribution date can incur tax liabilities regardless of how long the investor has invested in that fund. The timing of the buying and selling of investment assets is critical for proper tax efficient investing.
  • Account selection. Investors cannot overlook the benefits of tax-free growth in traditional or Roth IRA plans. A complete tax savings investment plan will generally include a mix of taxable and tax-free accounts.
  • Special Circumstances. Investors can make tax savings investments through charitable donations and 529 college savings plans. Again, each individual investor’s circumstances will define whether these options are appropriate for them at any given time.

How Do I Maximize Tax Efficiency?

The philosophy of the 6th Avenue Team is rooted in the idea that maximizing tax efficiency within an investment portfolio is not a one-time event. Rather, we formulate our initial investment recommendations only after we meet with a client to gain a complete understanding of that client’s goals. We will continue to revisit those needs as the portfolio expands and reacts to market changes

Why is Tax Efficient Investing a Good Idea?

By some measures, taxes can consume several percentage points of the annual gains in an investment portfolio. Over time, this can erode the value of a portfolio significantly.

Tax savings investment options may help investors recapture those lost dollars and use them to achieve even greater growth over the long term. When investors actively control their wealth rather than passively watching as external forces reduce the value of their portfolio, they become even more empowered to aggressively manage and maintain their assets.

The 6th Avenue Team at Ingalls & Snyder is fully committed to meeting our clients’ tax efficient investment goals. Please see our website and call our Manhattan office to schedule an appointment with an expert advisor and learn more about  we can help enhance the value of your investment portfolio. We look forward to hearing from you soon.

Additional Resources:

  1. fidelity.com: How to Invest Tax-Efficiently. https://www.fidelity.com/viewpoints/investing-ideas/tax-strategy
  2. schwab.com: The Importance of tax-Efficient Investing. https://www.schwab.com/resource-center/insights/content/importance-tax-efficient-investing
  3. investopedia.com: A Beginner’s Guide to Tax-Efficient Investing. https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp
  4. www.forbes.com: Are ETFs or Mutual Funds More Tax-Efficient? https://www.forbes.com/sites/simonmoore/2018/08/06/are-etfs-or-mutual-funds-more-tax-efficient/#64d022e72c61

CONTACT US

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Adam Janovic

co-founder

Thomas P. DiTosto

co-founder

The 6th Avenue Team Investment Philosophy is built upon a holistic, tax efficient approach to achieving your long-term financial goals.

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