Utilizing Realized Capital Losses to Optimize Portfolio Gains

The Challenge

The Client

An investor seeking strategies to mitigate tax drag while still participating in the market.

The Objective

Seek a market return and also use realized capital losses to offset gains from other parts of the investor’s portfolios?

Our Assignment

Earn market-like returns
Create tax efficiency across investor’s total portfolio
Reduce reliance on ‘picking winners’ or chasing returns

Our Solution

A Direct Indexing Strategy

We implemented a tax advantaged core portfolio with systematic year-round loss harvesting designed to achieve a broadly diversified stock market return and also harvest capital losses to offest realized capital gains from alternative and satellite investments.

Diagram: Utilizing Realized Capital Losses to Optimize Portfolio Gains

The Outcome

Leveraged a Direct Indexing Strategy as the Core of the Investor’s Portfolio

Implemented a tax advantaged core portfolio with systematic year-round loss harvesting designed to earn a broadly diversified stock market return and also harvest capital losses to offset realized capital gains from alternative and satellite investments.

Channelled the core into stable, long-term allocations

Created tax efficiency across investor’s total portfolio, as realized losses from core offset realized gains from satellites and created more tax efficiency upon asset allocation changes.

Greater discipline and stability to an investment portfolio

Reduced reliance on ‘picking winners’ or chasing returns. Provided greater portfolio diversificatiion and potentially improve after-tax returns by minimizing capital gains.

The cited case studies represent examples of how we have partnered with various institutional clients on a broad range of services and offerings. The experiences outlined in the case studies may not be representative of the experience of other clients. The case studies have not been selected based on portfolio performance and are not indicative of future performance or success. This is not a testimonial for Goldman Sachs Asset Management’s advisory services.

Start the Conversation

Contact Goldman Sachs Asset Management for a detailed discussion of your needs.

Risk considerations and disclosures

Equity investments are subject to market risk, which means that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular sectors and/or general economic conditions. Different investment styles (e.g., “growth” and “value”) tend to shift in and out of favor, and, at times, the strategy may underperform other strategies that invest in similar asset classes. The market capitalization of a company may also involve greater risks (e.g. "small" or "mid" cap companies) than those associated with larger, more established companies and may be subject to more abrupt or erratic price movements, in addition to lower liquidity.

Tax Considerations

The strategy may result in adverse tax consequences for the client including, but not limited to, wash sales. For example, data used for portfolio management may be incomplete, will be limited to information regarding the strategy account, and will not include information regarding positions held or transactions executed outside of the strategy account including other accounts managed by Goldman Sachs or its affiliates. As a result, portfolio management decisions may be based on incomplete information. All clients are strongly urged to discuss the tax implications of any transactions, including any potential wash sales, with their independent tax adviser. It is the responsibility of the custodian, administrator or such other third party appointed by the client, to obtain accurate and reliable information concerning the valuation of any securities which are comprised in the portfolio. Additionally, it is the responsibility of the client’s independent tax advisor to identify wash sales in the client’s portfolio.

Diversification does not protect an investor from market risk and does not ensure a profit.

Firmwide AUM includes assets managed by Goldman Sachs Asset Management and its investment advisory affiliates.

THESE MATERIALS ARE PROVIDED SOLELY ON THE BASIS THAT THEY WILL NOT CONSTITUTE INVESTMENT ADVICE AND WILL NOT FORM A PRIMARY BASIS FOR ANY PERSON'S OR PLAN'S INVESTMENT DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE MATERIAL OR CONTENT HEREIN. PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION.

Goldman Sachs does not provide legal, tax or accounting advice, unless explicitly agreed between you and Goldman Sachs (generally through certain services offered only to clients of Private Wealth Management). Any statement contained in this presentation concerning U.S. tax matters is not intended or written to be used and cannot be used for the purpose of avoiding penalties imposed on the relevant taxpayer. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives.

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. It should not be assumed that investment decisions made in the future will be profitable or will equal the performance of the securities discussed in this document.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of the date of this material and may be subject to change, they should not be construed as investment advice.

There is no guarantee that objectives will be met.