Tax-Efficient Rebalancing

As the year draws to a close, many investors are preparing to review their investment portfolios and tax strategies. By merging these two activities together with your team of advisors, you can enhance after-tax returns while keeping your investment strategy on track.

Tax-Loss Harvesting is a powerful strategy to sell capital losses for tax purposes only. This loss can offset capital gains, which reduces taxable income and potentially leading to tax savings. Many mutual fund families publish estimated capital gains tax distributions this time of the year, so it’s a good idea to understand how much those could be in order to execute this tax loss harvesting strategy before year end.

Investment rebalancing helps tax efficiency, manages risk and gives you peace of mind. Rebalancing is the process of adjusting the proportions of assets in your portfolio to maintain a desired level of risk usually by selling over-performing assets and buying under-performing ones to stay aligned with long-term financial goals. Rebalancing can be done in conjunction with tax-loss harvesting in order to create tax efficiency and the fourth quarter of the year is the last opportunity in the current year to minimize your tax liability.

If you have many unrealized gains, very little losses, and you have non-qualified and tax deferred assets, then you may want to take a different approach. You may want to consider a rebalancing strategy that aggressively rebalance the tax deferred account to achieve the risk target of your aggregate portfolio. Additionally, if you are able to make contributions to your tax deferred assets, you could direct any new contributions to underweight asset classes that may be out of favor.

In closing, year-end tax planning works in conjunction with investment portfolio rebalancing but you should consult your Investment Officer for guidance. It is important to note that this year-end exercise must be completed before December 31. Let us help you today!

Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.

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