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In this episode, Paul Bouchey, Managing Director, Applied Research at Parametric, explores the evolution of direct indexing and tax-managed investing, using Parametric's history as a lens to explain how wealth management has changed over the past several decades. The conversation traces the rise of passive investing and the latest innovations in customized portfolio construction, and how over time this has fundamentally reshaped how advisors serve their clients.
Risk Considerations:
Investment strategies that seek to enhance after-tax performance may be unable to fully realize strategic gains or harvest losses due to various factors. Market conditions may limit the ability to generate tax losses. Tax-loss harvesting involves the risks that the new investment could perform worse than the original investment and that transaction costs could offset the tax benefit. Also, a tax-managed strategy may cause a client portfolio to hold a security in order to achieve more favorable tax treatment or to sell a security in order to create tax losses. Prospective investors should consult with a tax or legal advisor before making any investment decision.
Long-short strategies engage in short selling. A short sale involves selling a security borrowed by the investor, with the expectation that its price will decline, obligating the investor to later replace it at the current market price. Short sales carry unique risks, including potentially unlimited losses if the security’s price rises, additional costs for borrowing, and the possibility of forced closure under unfavorable conditions. Other risks include increased leverage, regulatory changes that may restrict short selling, and the need to provide collateral, which can reduce investment flexibility.
