Tax-smart investment management1

The average Portfolio Advisory Services client has saved $3,900 in taxes per year,2 thanks to just one of our many tax-smart investing techniques (based on average account balance of $715,367)

Tax-smart investing

Taxes can have a significant impact on your investment returns. We seek to apply a range of different tax-smart investing techniques designed to help you keep more of what you earn, so your money stays invested and working for you.


Unlike some firms that simply wait until year end to harvest tax losses, we take an ongoing, tax-efficient approach that seeks to enhance after-tax returns—when we establish your portfolio, in our day-to-day management of your investments, and when you need to withdraw money.

Taxes Can Significantly Reduce Returns3
AVERAGE ANNUAL RETURN PERCENTAGE
HISTORIC MARKET PERFORMANCE: 1926—2022


Graphic is designed to show how taxes can have a significant impact on returns for a number of different asset classes. Using data from 1926 through 2022, the average returns are as follows: Stocks averaged 10.1% per year before taxes, and 8.2% per year after taxes. Bonds 5.2% per year before taxes, and 2.9% per year after taxes. Cash averaged 3.2% before taxes, and 2.0% after taxes. For perspective, we’re also showing the average annual rate of inflation over the same, which was 2.9%, to help you better understand how that can further erode investment returns.

FOR ILLUSTRATIVE PURPOSES ONLY.

1. Tax-smart (i.e., tax-sensitive) investing techniques (including tax-loss harvesting) are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager primarily with respect to determining when assets in a client's account should be bought or sold. As the discretionary portfolio manager, Strategic Advisers LLC ("Strategic Advisers") may elect to sell assets in an account at any time. A client may have a gain or loss when assets are sold. There are no guarantees as to the effectiveness of the tax-smart investing techniques applied in serving to reduce or minimize a client's overall tax liabilities, or as to the tax results that may be generated by a given transaction. Strategic Advisers does not currently invest in tax-deferred products, such as variable insurance products, or in tax-managed funds, but may do so in the future if it deems such to be appropriate for a client. Strategic Advisers does not actively manage for alternative minimum taxes; state or local taxes; foreign taxes on non-U.S. investments; federal tax rules applicable to entities; or estate, gift, or generation-skipping transfer taxes. Strategic Advisers relies on information provided by clients in an effort to provide tax-sensitive investment management and does not offer tax advice. Except where Fidelity Personal Trust Company (FPTC) is serving as trustee, clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities.

2. Tax-loss harvesting is one of several tax-smart investing techniques we apply in managed portfolios. Tax savings will vary from client to client. In any given year it may offer significant benefits during volatile markets. Past performance is no guarantee of future results. Factors that could impact the value of our tax-smart investing techniques include market conditions, the tax characteristics of securities used to fund an account, client-imposed investment restrictions, client tax rate, asset allocation, investment approach, investment universe, the prevalence of SMA sleeves and any tax law changes. This analysis is based on the performance of all accounts in good order within investment strategies (offered through Fidelity® Wealth Services) within taxable account registrations from 1/1/2013 for the Total Return Blended strategy, and from1/28/2019 for Total Return Fidelity-Focused and Index-Focused strategies and the Defensive approach (when tax-smart investment management capabilities were introduced) through 12/31/2022. Accounts managed with household tax-smart strategies are not included in this analysis. The analysis includes calculating the average of each year’s average account’s capital gains tax savings over the past ten years. We estimate potential capital gains tax savings by multiplying each harvested tax loss by the applicable short-or long-term capital gains tax rate for each client account at the end of each year. The average account balance is $715,367, which is the average of each year’s average account balance over the past ten years. The average balance has decreased over the course of the past ten years as we have seen a growth in the number of accounts after lowering minimums in recent years.

Our after-tax performance calculation methodology uses the full value of harvested tax losses without regard to any future taxes that would be owed on a subsequent sale of any new investment purchased following the harvesting of a tax loss. That assumption may not be appropriate in all client situations but is appropriate where(1) the new investment is donated (and not sold) by the client as part of a charitable gift, (2) the client passes away and leaves the investment to heirs, (3)the client’s long-term capital gains rate is0% when they start withdrawing assets and realizing gains, (4) harvested losses exceed the amount of gains for the life of the account, or (5) where the proceeds from the sale of the original investment sold to harvest the loss are not reinvested. Our analysis assumes that any losses realized are able to be offset against gains realized inside or outside of the client account during the year realized; however, all capital losses harvested in a single tax year may not result in a tax benefit for that year. Remaining unused capital losses may be carried forward to offset up to $3,000 of ordinary income per year. It is important to understand that the value of tax-loss harvesting for any particular client can only be determined by fully examining a client’s investment and tax decisions for the life the account and the client, which our methodology does not attempt to do. Clients and potential clients should speak with their tax advisors for more information about how our tax-loss harvesting approach could provide value under their specific circumstances.

3. Taxes Can Significantly Reduce Returns data, Morningstar 2023 and Precision Information, dba Financial Fitness Group 2023, 12/31/2022. All rights reserved.

Past performance is no guarantee of future results. This chart is for illustrative purposes only and does not represent actual or future performance of any investment option. Stocks after taxes assumes that the stocks purchased were held for five years, then sold, and the capital gains realized. The net proceeds from the sale were invested. Dividends were taxed when earned and reinvested. Bonds were turned over 28 times within the 96-year period. Capital gains were realized at the time of sale and reinvested. Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principaland interest, while stocks are not guaranteed and have been more volatile than other asset classes.

Federal income tax is calculated using historical marginal and capital gains tax rates for a single taxpayer earning $120,000 in 2015 dollars every year. This annual income is adjusted using the Consumer Price Index in order to obtain the corresponding income level for each year. Income is taxed at the appropriate federal income tax rate as it occurs. When realized, capital gains are calculated assuming the appropriate capital gains rates. The holding period for capital gains tax calculation is assumed to be five years for stocks, while government bonds are held until replaced in the index. No state income taxes are included.

Stocks are represented by the Ibbotson® Large Company Stock Index. Government bonds represented by the 20-year U.S. government bond, cash by the 30-day U.S. Treasury bill, and inflation by the Consumer Price Index. An investment cannot be made directly in an index. The data assumes reinvestment of income and does not account for transaction costs.

Tax-smart transition management
When it makes sense in the context of your chosen investment strategy, we search for ways to integrate your existing eligible holdings3 into your managed account as opposed to selling all your existing investments in order to "start from scratch." This can help reduce the potential tax consequences of creating your personalized investment strategy.4

Tax-smart withdrawals
If you take money from your account, we'll seek to reduce the tax consequences of that. If withdrawals are planned, we'll seek to keep sufficient cash in your account. If they're unplanned, and we have to sell securities to fund them, we'll work to reduce the tax impact of those sales.

Harvest tax losses
Unlike some investment firms that wait until year end to search for tax-loss harvesting opportunities, we're looking at your managed portfolio throughout the year. This enhances our ability to offset any realized gains you may have in your account.

Manage capital gains
When selling investments in your account, we'll generally first look to sell those that you've held for a longer time period, allowing us to take advantage of lower long-term capital gains tax rates.

Manage distributions
We work to manage your exposure to income distributed by the mutual funds in which you're invested, due to either capital gains or because the securities held by those funds pay dividends or interest.

Exposure to municipal bonds
When selecting bond funds for your account, we consider a number of different factors. When it makes sense, we may purchase municipal bond funds that generate interest that may be exempt from federal taxes and, in some cases, state taxes.

1. Tax-smart (i.e., tax-sensitive) investing techniques (including tax-loss harvesting) are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager primarily with respect to determining when assets in a client's account should be bought or sold. As the discretionary portfolio manager, Strategic Advisers LLC ("Strategic Advisers") may elect to sell assets in an account at any time. A client may have a gain or loss when assets are sold. There are no guarantees as to the effectiveness of the tax-smart investing techniques applied in serving to reduce or minimize a client's overall tax liabilities, or as to the tax results that may be generated by a given transaction. Strategic Advisers does not currently invest in tax-deferred products, such as variable insurance products, or in tax-managed funds, but may do so in the future if it deems such to be appropriate for a client. Strategic Advisers does not actively manage for alternative minimum taxes; state or local taxes; foreign taxes on non-U.S. investments; federal tax rules applicable to entities; or estate, gift, or generation-skipping transfer taxes. Strategic Advisers relies on information provided by clients in an effort to provide tax-sensitive investment management and does not offer tax advice. Except where Fidelity Personal Trust Company (FPTC) is serving as trustee, clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities.

2. Tax-loss harvesting is one of several tax-smart investing techniques we apply in managed portfolios. Tax savings will vary from client to client. In any given year it may offer significant benefits during volatile markets. Past performance is no guarantee of future results. Factors that could impact the value of our tax-smart investing techniques include market conditions, the tax characteristics of securities used to fund an account, client-imposed investment restrictions, client tax rate, asset allocation, investment approach, investment universe, the prevalence of SMA sleeves and any tax law changes. This analysis is based on the performance of all accounts in good order within investment strategies (offered through Fidelity® Wealth Services) within taxable account registrations from 1/1/2013 for the Total Return Blended strategy, and from1/28/2019 for Total Return Fidelity-Focused and Index-Focused strategies and the Defensive approach (when tax-smart investment management capabilities were introduced) through 12/31/2022. Accounts managed with household tax-smart strategies are not included in this analysis. The analysis includes calculating the average of each year’s average account’s capital gains tax savings over the past ten years. We estimate potential capital gains tax savings by multiplying each harvested tax loss by the applicable short-or long-term capital gains tax rate for each client account at the end of each year. The average account balance is $715,367, which is the average of each year’s average account balance over the past ten years. The average balance has decreased over the course of the past ten years as we have seen a growth in the number of accounts after lowering minimums in recent years.

Our after-tax performance calculation methodology uses the full value of harvested tax losses without regard to any future taxes that would be owed on a subsequent sale of any new investment purchased following the harvesting of a tax loss. That assumption may not be appropriate in all client situations but is appropriate where(1) the new investment is donated (and not sold) by the client as part of a charitable gift, (2) the client passes away and leaves the investment to heirs, (3)the client’s long-term capital gains rate is0% when they start withdrawing assets and realizing gains, (4) harvested losses exceed the amount of gains for the life of the account, or (5) where the proceeds from the sale of the original investment sold to harvest the loss are not reinvested. Our analysis assumes that any losses realized are able to be offset against gains realized inside or outside of the client account during the year realized; however, all capital losses harvested in a single tax year may not result in a tax benefit for that year. Remaining unused capital losses may be carried forward to offset up to $3,000 of ordinary income per year. It is important to understand that the value of tax-loss harvesting for any particular client can only be determined by fully examining a client’s investment and tax decisions for the life the account and the client, which our methodology does not attempt to do. Clients and potential clients should speak with their tax advisors for more information about how our tax-loss harvesting approach could provide value under their specific circumstances.

3. For a list of eligible investments, see our Program Fundamentals or contact a Fidelity representative. Clients may elect to transfer noneligible securities into their accounts. Should they do so, Strategic Advisers or its designee will liquidate those securities as soon as reasonably practicable, and clients acknowledge that transferring such securities into their accounts acts as a direction to Strategic Advisers to sell any such securities. Clients may realize a taxable gain or loss when these shares are sold, which may affect the after-tax performance/return within their accounts, and Strategic Advisers does not consider the potential tax consequences of these sales when following a client's deemed direction to see such securities. Strategic Advisers reserves the right not to accept otherwise eligible securities, at its sole discretion.

4. While Strategic Advisers does consider the potential tax consequences of the sale of eligible securities used to fund an account managed with tax-smart investing techniques, Strategic Advisers believes that appropriate asset allocation and diversification are of primary importance and applies tax-smart investing techniques as a secondary consideration in managing such accounts. Accordingly, clients who fund an account managed with tax-smart investing techniques with appreciated securities should understand that Strategic Advisers could sell such securities notwithstanding that the sale could trigger significant tax consequences.