Forecasts for capital market returns in the next ten years are far less robust than historical returns. Investors and advisors need to face this reality and plan accordingly in order to set achievable goals, focusing on variables that can be controlled.
Advisors have more products and information at their disposal than ever before to build cost-effective portfolios. Capitalizing on these tools can yield significant savings and substantially better outcomes for clients.
Most economists are projecting much more modest capital market returns for the next decade than what we enjoyed for the past 30 years. This reality needs to be incorporated into planning for individuals and institutions alike, to set appropriate expectations. It also raises the stakes on managing costs and taxes to reduce the drag on investment returns to achieve superior outcomes.
Tax alpha is the additional return that can be generated managing a taxable portfolio in a tax-efficient manner – actively harvesting losses and deferring gains on individual securities.
As the chart illustrates, tax alpha can significantly improve investment outcomes for clients when a portfolio is managed tax efficiently.
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