How Tax-Loss Harvesting Is Naturally Baked Into Our Process

Our blood boils a little bit every time we hear someone repeat the myth that risk management and tax efficiency are like oil and water. In our view, the real conundrum is that most tactical managers do not place proper emphasis on taxes, while most tax-efficient portfolio strategies do not adequately account for portfolio risk.

In the spirit of transparency, we admit we also didn’t fully appreciate the role of trend following in delivering tax alpha for financial advisors until we dug deeper into feedback we received from a few advisor partners. Fortunately, we quickly learned from our oversight and have since made tax management a cornerstone of our risk-managed, systematic investing process.

Systematic Investing Strategies Can Be Inherently Tax-Friendly

The trend following separately managed account strategies offered by Blueprint Investment Partners are naturally tax-friendly because we incorporate timeframes with varied duration.

This time diversification inherently leads to:

Shorter-term timeframes selling losing positions quickly when prices fall

Holding gains if uptrends persist, with longer-term timeframes usually allowing us to harvest a portion of gains after 12 months

The result is a smoothing out of the tax profile, as well as less choppy ride for an advisor’s clients.

We illustrated the impact of trend following on unrealized capital gains and pre-/after-tax returns in, “A Tax Dilemma – How Capital Gains Can Hold Financial Advisors Hostage,” a post from our A Systematic Walk Down Wall Street blog.

5 Primary Attributes Blueprint Portfolios

Global Asset Allocation

Portfolio diversification across eight major global asset classes in a single investment vehicle

Rules-Based Process Optimized for Behavioral Finance

Systematic investing process answers questions about what, when, and how much to buy and sell – repeatable rules that can help maintain discipline during prolonged market volatility by leaving no room for emotional decision-making amidst euphoria or fear

Dynamic Adjustments in Response to Market Changes

Asset allocation naturally adapts to market conditions – portfolio can look quite different depending on the environment (e.g., when there are uptrends/downtrends in an asset class, interest rates change, volatility arises, or inflation/deflation occurs)

Focus on Managing Downside Risk

Constructed to manage risk during bear markets and severe drawdowns (like 2022 and the Coronacrash of March 2020), but doesn’t need to go completely “risk off” amidst less significant pullbacks (especially those that affect only select asset classes, not the whole financial system)

Ongoing Tax-Loss Harvesting

Tax-friendly portfolio is possible by using a blend of timeframes – this time diversification allows losing positions to be sold quickly, but gains can be held as long as uptrends persist

Monthly Asset Allocation Update

Summary of current positioning

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