Maximizing Returns with Tax Efficiency and Active Fixed-Income Investing

With the ever-evolving number of resources and tools available to investors, it is important for financial advisors to proactively seek ways to make their services more comprehensive and their strategies more robust. Active tax management is a nuanced yet important service that can help an advisor differentiate themselves from other wealth managers. In this article, we will explore strategies such as tax-loss harvesting and active fixed-income investing to demonstrate how these techniques can help you manage client assets with greater tax-efficiency and potentially boost their returns.

Active tax management strategies involve actively managing a portfolio to take advantage of market opportunities and mitigate risks. One such strategy is tax-loss harvesting, which allows investors to offset capital gains by selling investments that have experienced losses. By realizing these losses, investors can reduce their tax liability and potentially enhance overall portfolio returns.

Tax-loss harvesting works by selling investments that have experienced a decline in value. These losses can then be used to offset capital gains realized from other investments, reducing the investor’s tax burden. However, it is important to be mindful of the wash-sale rule, which prohibits investors from repurchasing a substantially identical investment within 30 days of selling it for tax-loss purposes.

In addition to tax-loss harvesting, financial advisors can employ active strategies in fixed-income investing. Traditionally, fixed-income investments have been considered more conservative assets. However, with active fixed-income investing, advisors manage bond portfolios to maximize returns and minimize risks.

Telemus employs a fixed-income strategy known as the Telemus Blended Fixed Income Strategy. This proprietary strategy combines traditional, intermediate, investment-grade bonds with intermediate BB-rated bonds. Extensive research spanning over 30 years has shown that BB-rated bonds can offer an attractive risk/return profile. Despite being below investment grade, BB-rated bonds have historically offered higher yields than BBB-rated bonds, with negligible differences in default rates. Furthermore, shorter duration BB bonds have demonstrated higher returns and lower volatility compared to longer-dated bonds of similar rating over full market cycles.

Maximizing client returns requires a proactive approach. Advisors who are willing to embrace active strategies and leverage techniques like tax-loss harvesting can unlock opportunities for their clients, enhance potential returns, and minimize tax liabilities. As a trusted advisor, it is essential to stay informed about these strategies and utilize them for your clients’ benefit.

If your advisor is not taking proactive steps to manage your wealth, consider a change today.

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