The 4 A’s of Preparing for Capital Gains Season

Executive summary:

  • Taxes can have a significant and ongoing impact on an investment portfolio.
  • Advisors can help their clients minimize that impact with a tax-smart approach.
  • Advisors can prepare for capital gains season now, and potentially maximize their clients’ after-tax returns.

The economy. Political discord. Inflation. Consumer spending. Geopolitical tension. Wars. Interest rates. Mortgage rates. The actions of the Federal Reserve. There is a lot in the news these days.

What should we focus on? What is most important as we think about our savings, our retirement, and our investments?

It's easy to become distracted by everything that is occurring around us. There's a lot of noise. But the truth is that any of those issues affect us for only a short time. What we should focus on are the things that have a constant impact on us and our portfolios.

An issue that has a constant impact can have a significant and long-term detrimental effect on your savings, your retirement, and your investments. That constant impact is TAXES. As Benjamin Franklin once famously wrote, taxes are as certain as death. When it comes to an investment portfolio, the impact of taxes can be sizable, and can result in permanent capital destruction.

The conversations you have with your clients and the questions they ask are often influenced by what's in the current news cycle. It's up to you to refocus the conversation to something that is also important – more so in fact: the constant tax impact that may quietly be eating away at their investment growth and after-tax wealth. We call that impact "tax drag" because of its potential to hold back an investor's overall returns.