Your Advisor May Be Using an Outdated Investment Playbook
By Brian Wheeler, Director of Wealth Management & Business Brokerage
The Investment World Is Changing…but you may not be hearing about it!
One of the biggest topics at the recent Envestnet Elevate conference was the rapid evolution of tax-aware investing through Direct Indexing, tax overlay strategies, and customized SMA (Separately Managed Account) portfolio management designed to improve after-tax outcomes for investors.
A few years ago, these types of strategies were typically reserved for ultra-high-net-worth investors with very large portfolios. Today, technology has changed that dramatically.
What was once only available to the wealthiest investors is now becoming accessible to many successful families, professionals, and business owners with much more reasonable account minimums.
Why does this matter? Because traditional investing often ignores one of the biggest drags on long-term wealth creation…Taxes.
For years, many investors were placed into standard mutual funds, ETF models, or managed portfolios that focused almost entirely on performance before taxes, while giving very little attention to what investors actually kept after taxes.
That’s a problem…especially for high-income earners, business owners, or retirees with sizable taxable investment accounts.
Direct indexing strategies allow investors to own the underlying individual stocks within an index rather than simply buying a single index fund. That creates opportunities to:
- harvest tax losses throughout the year
- offset gains elsewhere
- potentially reduce taxable income
- potentially build tax-loss carryforwards that may help offset future capital gains from the sale of investments, businesses, or even real estate interests
- create greater flexibility around future liquidity and diversification decisions.
In simple terms…the goal is not just to generate returns. The goal is to improve what you actually keep. That’s a very different conversation, and honestly, this is where the investment industry is beginning to separate into two groups:
- advisors embracing technology, personalization, and tax-aware planning.
- advisors still running largely standardized portfolio models because “that’s how it’s always been done”
To be fair, traditional diversification and low-cost investing still matter. That is true! But many investors are now discovering that modern portfolio management is becoming far more customized and tax-aware than what they’ve experienced in the past.
This was reinforced recently in a Wall Street Journal article titled “Stock Gains Without All the Taxes? How the Hottest Trade on Wall Street Works” discussing the growing attention around tax-efficient investing strategies and how technology is changing portfolio management for everyday investors…not just the ultra-wealthy.
The reality is that taxes, investment location, withdrawal sequencing, and portfolio structure can sometimes have just as much impact on long-term outcomes as investment selection itself.
In some cases, investors who consistently harvest losses over time may accumulate meaningful tax-loss carryovers that can potentially be used strategically in future years. That can become particularly valuable for investors who may eventually sell concentrated stock positions, investment properties, a business, or other highly appreciated assets.
While no strategy eliminates taxes altogether, having accumulated losses available in the right situations can create planning flexibility that many traditional portfolio approaches simply never address.
Yet many investors rarely hear these conversations from their advisors. That should probably raise a question. If your advisor has never discussed tax-aware investing, direct indexing, tax overlay strategies, or ways to improve after-tax efficiency inside taxable accounts…you may want to ask why.
Not every investor is a fit for these strategies. But many investors are.
For certain investors, especially those with large taxable accounts, concentrated positions, executive compensation stock, real estate holdings, or future business sale considerations, these conversations can become extremely important.
And in today’s environment, continuing to ignore tax efficiency altogether may be leaving real money on the table over time.
At Keystone Wealth Advisors, we believe investment management should evolve alongside technology, tax law, and investor needs…not stay stuck in outdated portfolio models simply because they’re familiar.
Because good investing is not just about what you make….it’s also about what you keep.