Make tax-smart investing part of your tax planning

You can work with a Fidelity advisor, who can explain the benefits of applying tax-smart investing techniques in your managed portfolio throughout the year. Because it's not what you earn, it's what you keep.

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The average client with a Portfolio Advisory Services account using tax-smart strategies could save $3,900 per year in taxes.1 But that's just in one year and using one of our tax smart techniques. Over time that savings can stay invested, giving it a chance to grow over the long term.

More than tax-loss harvesting2

We use a variety of techniques in your managed portfolio3 at different times throughout the year to help improve after-tax returns.

Personalized strategies

Our team takes a personalized approach, tailored to your unique financial situation and investment preferences.

A proactive approach

Portfolio managers review all of your holdings, including individual purchase dates, in search of opportunities designed to reduce the impact of taxes on your investments.

Improving after-tax returns may have a significant long-term impact

The chart below is designed to help demonstrate how tax-smart techniques can help add value, which can compound over time.

Chart: This graphic seeks to illustrate the benefits of tax-smart investment management over time. In this hypothetical example, 5 different $1 million portfolios are fully invested on January 1 2002, 2007, 2012, 2017 and 2021. Each line represents the additional returns generated by tax-smart investing between the beginning date for each portfolio and December 31, 2021. For the portfolio created in 2002 an additional $545,133 in after-tax returns were generated. For the portfolio created in 2007 an additional $308,892 in after-tax returns were generated. For the portfolio created in 2012 an additional $59,583 in after-tax returns were generated. For the portfolio created in 2017 an additional $56,836 in after-tax returns were generated. For the portfolio created in 2021 an additional $4,019 in after-tax returns were generated.
For informational purposes only. Returns for individual clients will vary. Each line represents the value from tax-smart investing techniques at various starting dates, assuming an initial account value of $1 million. Based on the performance of a composite of accounts managed using the following strategy characteristics: Growth with Income asset allocation using tax-smart investing techniques (but not household tax-smart strategies), the total return investment approach and blended investment universe, investing in municipal securities, and includes accounts that do and do not use separately managed account sleeves (“SMAs”). Please be aware that the value of tax-smart investing techniques would be different, perhaps significantly, for an account that is not managed using the same configuration of strategy characteristics as the composites shown above. The Growth with Income asset allocation, total return investment approach, and blended investment universe were chosen because they are the most commonly used asset allocation, investment approach and universe in the program. Please speak to your Fidelity representative for information about the performance of other strategy characteristics available through the program.

Our tax-smart approach can help with year-round tax planning

We apply up to 6 tax-smart investing techniques in your managed portfolio at different times throughout the year, some as early as the day you fund your Portfolio Advisory Services account.

Tax-loss harvesting2

Unlike some investment firms, which 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.

  • Tax-loss harvesting may offer significant benefits during volatile markets

    As the graphic shows, periods of market volatility, while often difficult for investors, can also create opportunities. Very often the periods of greatest market volatility can lead to the highest number of tax-loss harvesting opportunities, which can help increase after-tax returns when markets recover. In 2021, Fidelity helped generate $402M cumulative tax savings from tax loss harvesting in Fidelity® Wealth Services accounts.*

    Chart: This graphic is intended to show how market volatility has the potential to create tax savings through tax-loss harvesting. Performance of Dow Jones US Total Market Index between January 2021 and December 2021 is shown to illustrate periods of market volatility, which are indicated by boxes. Cumulative tax savings created by tax-loss harvesting is shown to indicate how savings can often follow these periods of market volatility.

    Results will vary: 2020's are not typical. In our analysis over the past five years, cumulative tax savings from tax-loss harvesting differed from year to year and has ranged from as much as three times the amount reported for 2021 to as low as less than a tenth of the amount reported for 2020.

    The right axis and blue line represent the movements of the U.S. stock market as measured by the Dow Jones U.S. Total Stock Market as of 12/31/2021. Methodology: The table and chart represents the cumulative total tax lot losses harvested, i.e., potential tax savings, in all accounts in good order in Fidelity Wealth Services accounts managed with tax-smart investing techniques. Each tax lot loss within the population of accounts was evaluated. The specific tax rate applicable to the respective client account was applied to calculate the dollar loss of each tax lot, applying the client’s ordinary income tax rate to short-term losses and applying the client’s capital gains tax rate to long-term losses. All capital losses harvested in a single tax year may not result in a tax benefit for that tax year. If you have more capital losses than gains, you may be able to use up to $3,000 a year to offset ordinary income on federal income taxes, and carry over the rest to future years. Results will vary. In our analysis over the past five years, cumulative tax savings from tax-loss harvesting differed from year to year and was as small as a tenth of the amount shown in the chart. Source: Fidelity Tax Account System as of 12/31/2021.

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.

Invest in 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.

Transition management

When it makes sense in the context of your chosen investment strategy, we search for ways to integrate your existing eligible holdings5 into your managed account as opposed to selling all of your existing investments in order to "start from scratch." This can help reduce the potential tax consequences of creating your personalized investment strategy.6

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.

Wealth Management through Fidelity® Wealth Services

You'll have the opportunity to work with a dedicated Fidelity advisor who can help you understand the benefits of tax-smart investing techniques, help you create a flexible plan for your full financial picture, and provide access to personalized investment management.

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