Taxes are often an over-looked part of the portfolio. Their impact is real though, and they should be managed as effectively as possible. As the saying goes, it's not what you make, it's what you keep.
Blue Water is committed to tax efficiency.
- Our recommended portfolios are implemented across your accounts with the goal to keep taxes at a minimum. We pay particular attention to asset location (placing tax inefficient assets in tax-qualified accounts such as IRAs).
- Our overall portfolio management and the funds we use are very tax efficient. Low turnover helps control taxable distributions.
- We have access to tax-managed institutional funds. We use these and municipal bond funds, when appropriate, to reduce taxes and improve your overall after-tax return.
- Taxes and transaction costs are always considered before executing any necessary trading and/or rebalancing of the portfolio.
- Short-term capital gains (positions held one year or less) are taxed at ordinary income rates like your wages, interest, etc. Long-term capital gains (positions held for more than one year) are taxed at much lower rates. If trades are necessary in an appreciated portfolio, it is our goal to realize long-term capital gains and avoid the higher tax consequences of short-term capital gains.
- When there are realized gains in the portfolio, we use a technique called "tax-loss harvesting" to try to offset these gains. Tax-loss harvesting is when you purposely sell a position to realize a loss for tax reasons and replace it with a similar investment. Your overall asset allocation stays the same, but the loss helps you tax-wise. Tax-loss harvesting is an important part of tax-efficient investing. Our portfolio management includes periodically reviewing portfolios for these opportunities.