Michael O. AdairManaging Director, Senior Investment Consultant | 2018

Tax Alpha: Enhancing Returns Through Active Tax Management

Key Points

Tax alpha refers to the practice of leveraging tax-saving strategies to maximize your after-tax returns.

WHAT IS TAX ALPHA?

Tax alpha refers to the practice of leveraging tax-saving strategies to maximize your after-tax returns. The lack of tax management can cost an investor as much as 25% of their returns.¹ While it’s difficult to pinpoint what percentage of returns is added to your after-tax return through tax alpha, according to our internal study, it may be approximately 121 bps per year.² Over time, this can lead to a significant gain (see chart).

Tax management is an important part of our strategy at City National Rochdale, and we take a disciplined and methodical approach to it. Our view is that it’s a function of open, four-way communication between the investor, tax professional, financial advisor, and portfolio manager. What follows is an outline of our methodology (see table of contents).

CONTINUE READING

Tax alpha refers to the practice of leveraging tax-saving strategies to maximize your after-tax returns.

Table of Contents

Sources

¹Weinberg, Ari I (2012, October 16). A magical tax-loss harvesting machine? Forbes. Retrieved from https://www.forbes.com/sites/ ariweinberg/2012/10/16/a-magical-tax-loss-harvesting-machine/#6f09b0f47a5e
²Polyak, Ilana (2017, October 16). 'Tax alpha' is much more than simple tax-efficiency. CNBC. Retrieved from https://www.cnbc.com/2017/10/16/ tax-alpha-is-much-more-than-simple-tax-efficiency.html

IMPORTANT DISCLOSURES

Investment management services provided by City National Bank through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor.

City National Rochdale, as a matter of policy, does not give tax or legal advice. Before implementation, you should consult with your other advisors on the tax, accounting, and legal implications of the proposed strategies based on your particular circumstances.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money.

City National Bank provides investment management services in conjunction with City National Rochdale, its wholly owned subsidiary. Attached herein are communications prepared by City National Rochdale that reflect City National Bank’s investment products and services.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that invest¬ment objectives will be met, and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

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