Frequently Asked Questions – Opening and Funding a Personal Portfolio

Does MFWM Have Tax-Efficient Portfolios?

There are several components of “tax efficiency,” so let’s address them one by one.

Tax loss harvesting: Tax loss harvesting typically consists of selling investment positions that have a loss, usually at the end of the year, in order to offset investment gains that have been realized throughout the year. The tax code restricts the time that someone can sell a position at a loss, and buy it back again. In many cases, this would leave a portion of your account uninvested for a period of time since MFWM portfolios consist of individual stocks that cannot be easily interchanged. For this and other reasons, MFWM does not implement tax loss harvesting on your behalf.

Municipal bond income: Municipal bond income can reduce your tax liability since federal income tax excludes municipal bond interest from your income. Municipal bond interest also receives this treatment in certain states. Because of this tax treatment, the yield on municipal investments is generally lower than the yield on other fixed income investments. The benefit of municipal bonds is highly dependent upon your other income and tax rates. While it is difficult to know whether municipal bonds would benefit your specific situation, we generally find that the lower yield of municipal investments does not make up for the potential tax benefits. MFWM’s fixed income strategy does not include municipal bonds, however, our index-based portfolios include an allocation to municipal bonds in taxable accounts.

Tax location strategy: Tax location simply refers to the placement of different asset types in different accounts based on tax treatment. If we find a way to automate this as part of the Personal Portfolio program, you will be the first to know. Currently, for clients investing $500,000 or more in our Personal Portfolios, we offer tax location as part of our personalized financial planning services. You can learn more about these services by calling a planner at 844-408-4391.

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