Fidelity® Tax-Managed U.S. Equity Index Strategy
A separately managed account that seeks to provide long-term growth of capital while leveraging Fidelity's tax-sensitive investment management1 capabilities in an effort to enhance after-tax returns
Your account will be managed in an effort to harness the long-term growth potential of US large-cap stocks while seeking to enhance after-tax returns through active tax management.1
For example, with tax-loss harvesting, even when the market's up there may still be pockets of volatility within certain asset classes or categories. This volatility creates potential opportunities to harvest losses in an effort to offset gains. Knowing when to act can dramatically impact an investor's plan.
When investments held in an account have lost value, we may sell those investments, thereby "realizing" the loss. That loss can be used to offset ordinary income (up to $3,000 per year). If an investor has losses of more than $3,000 in any given year, that investor may be able to carry those losses forward and use them to offset gains in a future year.
Understanding the optimal time to realize gains and losses can often mean monitoring up to hundreds of different tax lots on a daily basis. Our investment managers are continuously on the lookout for potential opportunities for each investor in light of their particular situation.
A hypothetical example of how tax-loss harvesting works
This hypothetical illustration assumes the investor met the holding requirement for long-term capital gains tax rates (longer than one year), the gains were taxed at the current maximum federal rate of 23.8%, and the loss was not disallowed for tax purposes due to a wash sale, related party sale, or other reason. It does not take into account state or local taxes, fees, or expenses, or the net gain's potential impact on adjusted gross income, which could impact exemption and deduction phaseouts and eligibility for other tax benefits.
Tax-loss harvesting is a way to reduce the taxes associated with capital gains. Let's assume an investor has a long-term capital gain of $5,000 in Investment A, and a long-term capital loss of $4,000 in Investment B. If that investor sells Investment A, they would have a federal capital gains liability of $1,190 (assuming a $23.8% federal tax rate).
However, by selling Investment B and realizing the $4,000 loss during the same tax year the investor sold Investment A, they can use that loss to partially offset the gain in Investment A. By doing this, they net long-term capital gain from $5,000 to $1,000, which would reduce their tax liability from $1,190 to $238.
How we manage your account for taxes
Your account will be managed in an effort to boost your after-tax returns throughout the year—not just at year end. Your account is evaluated each business day and uses one or a combination of the following techniques to seek enhanced after-tax returns
We take a disciplined and thoughtful approach to building and maintaining your portfolio by applying a number of tax-sensitive techniques designed to help reduce the impact of taxes and enhance after-tax returns in an effort to help you achieve your financial goals.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917