Banner Year for Tax-Loss Harvesting
While markets were down significantly in 2022, conditions favored investors who own stocks directly in Separately Managed Accounts, as there were abundant opportunities for tax loss harvesting.
~ Curt Overway, CFA®
Co-Head, Natixis Investment Managers Solutions
Despite a difficult December, the markets posted positive returns for the fourth quarter of 2022 as October and November saw a bit of recovery in an otherwise very challenging year. On the tax front, the SECURE 2.0 Act was passed and signed into law. While the new law doesn’t directly impact tax rates that apply to investment portfolios, it does have a number of implications for financial planning.
The S&P 500® index was down 18.1%, even after gaining 7.6% for the quarter – the only quarter in 2022 with a positive return. The market downturn extended the maximum drawdown for the year ever so slightly from -24.3% to -24.5% before it began to recover in October. This is the second largest drawdown since the Global Financial Crisis in 2008 and 2009, but it offered opportunities for investors to harvest losses to offset capital gains.
S&P 500® Losers vs. Winners – Historical Perspective
Source: Thomson Reuters, Standard & Poor’s, Natixis Investment Managers SolutionsPerformance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.
Although the S&P 500® was down for a third consecutive quarter, the dispersion of returns improved somewhat, with higher highs – and higher lows – in Q3 2022 compared to the first two quarters of the year.
Quarterly Dispersion of Return for S&P 500® Stocks (January 1, 2021 – December 31, 2022)
Source: Thomson Reuters, Standard & Poor’s, Natixis Investment Managers Solutions
Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.
Chart illustrates the improved market environment in Q4 relative to the previous three quarters.
To learn more, please read the full Tax Management Update Q4 2022.
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Tax Management Update Q4 2022
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Tax-Efficient Investing in Separately Managed Accounts (SMAs)
Direct Indexing SMAs can help address key issues facing tax-sensitive investors. All accounts are actively managed to optimize tax loss harvesting while providing beta exposure to an index. Our tax-managed SMAs include:
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What Is Tax Loss Harvesting?
A portfolio can harvest its losses for tax purposes by selling investments when their current value is less than the price originally paid for the security. These losses can be used to offset other capital gains on an investor’s tax return. If there are excess losses, they can be used to offset up to $3,000 in ordinary income – or be banked for use in future years.
Investment Risks: All securities are subject to risk, including possible loss of principal. Please read the risks associated with each investment prior to investing. Detailed discussions of each investment’s risks are included in Part 2A of each firm’s respective Form ADV. The investments highlighted in this presentation may be subject to certain additional risks.
A tax liability is the total amount of tax debt owed by an individual, corporation or other entity to a taxing authority.
Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.
CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.
S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.
The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
Indexes are not investments, do not incur fees and expenses and are not professionally managed. It is not possible to invest directly in an index.
Investing involves risk, including risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
This document may contain references to copyrights, indexes and trademarks that may not be registered in all jurisdictions. Third-party registrations are the property of their respective owners and are not affiliated with Natixis Investment Managers or any of its related or affiliated companies (collectively “Natixis”). Such third-party owners do not sponsor, endorse or participate in the provision of any Natixis services, funds or other financial products.
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