Tax efficient equity investing

A simplified way to think about these scenarios is that TME Schedule does not consider tax lot level information; Pro Rata considers neither tax lot level information nor security level information; and TME Actual considers both. See Exhibit 1 below. See Exhibits 2 and 3. TME, an important strategy in reducing tax liability, provides several major benefits to investors who are looking to diversify away from concentrated equity holdings, whether they have one stock that dominates their allocation or The most obvious and easily quantifiable benefit is the reduction in incurred gains and concomitant increase in after-tax returns through conscious management of positions at both the security and tax lot level.

Evaluating your plan on a regular basis with your wealth manager can help ensure that your portfolio is making the most out of tax efficiency. While this study looks specifically at managing a concentrated portfolio, TME is also an effective strategy for other scenarios. The transition process can be utilized to tax-efficiently address reallocation of existing portfolios i.

Beyond minimizing taxes in each scenario, a TME-driven diversification or transition plan reduces portfolio risk, increases the odds of goal achievement and eliminates the emotional decision-making that often undermines an otherwise well-thought-out financial plan. Removing the emotion from investing through a consistent, repeatable process can help grow and maintain wealth more efficiently over time.

Conclusion Concentrated portfolios come in all shapes and sizes, from single-stock portfolios that reflect the success and failure of one company to portfolios with plus names that may appear diversified but expose investors to a high degree of tracking error relative to their chosen benchmark. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Consult an attorney or tax professional regarding your specific situation. This information is intended to be educational and is not tailored to the investment needs of any specific investor. Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities. Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Any fixed income security sold or redeemed prior to maturity may be subject to loss. The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Although state-specific municipal funds seek to provide interest dividends exempt from both federal and state income taxes and some of these funds may seek to generate income that is also exempt from federal alternative minimum tax, outcomes cannot be guaranteed, and the funds may generate some income subject to these taxes.

Residency in the state is usually required for the state income tax exemption. Generally, municipal securities are not appropriate for tax advantaged accounts such as IRAs and k s. Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry. Exchange-traded products ETPs are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments.

Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus.

ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value NAV or indicative value in the case of exchange traded notes. The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them.

Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions. Past performance is no guarantee of future results.

This assumes that all realized gains are subject to the maximum federal long-term capital gains tax rate of Assets contributed may be sold for a taxable gain or loss at any time. All rights reserved.

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