Tax Alpha: Enhancing Returns Through Active Tax Management
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).
Tax alpha refers to the practice of leveraging tax-saving strategies to maximize your after-tax returns.