Important Disclosures: This illustration is hypothetical and is provided for educational purposes only. It is intended to demonstrate how realized investment losses may be used to offset realized capital gains through tax-loss harvesting within a direct indexing strategy. It does not represent the performance of any actual account or investment strategy. The illustration does not reflect advisory fees, transaction costs, taxes, or other expenses, which would reduce investment returns. Tax-loss harvesting opportunities are not guaranteed, and the availability and tax impact of realized losses will vary based on market conditions, an investor’s holdings, tax circumstances, and applicable tax laws. Investors should consult their tax professional regarding their individual circumstances.
Direct indexing is a strategy that allows investors to replicate the performance of a stock index through direct ownership of individual stocks. This approach offers several benefits, including tax-loss harvesting, which can help reduce tax bills by offsetting capital gains with losses from other positions. Direct indexing also provides customization and transparency, allowing investors to tailor their portfolios based on personal values, risk preferences, or tax needs. The performance of a portfolio using Direct indexing may vary significantly from the target index (referred to as tracking error or tracking difference), and this variance may increase with greater customization within a portfolio.
Tracking Difference (Tracking Error) is a statistical measure that estimates how closely a portfolio is expected to "track" its underlying target strategy. The larger the tracking difference, the greater the range of potential outcomes (positive or negative) relative to the target strategy.
Tax-loss Harvesting is a process by which securities trading at unrealized losses are sold to realize a taxable loss. Proceeds from the sales are then reinvested in alternative securities to maintain market exposure. Tax-loss Harvesting can be used as a strategy to offset realized gains from other investments and/or carried forward to later calendar years to offset future taxable gains.
This information is general in nature and is not intended as tax advice. You should consult a tax professional about how this applies to your individual tax situation. This is not a substitute for individualized accounting, legal, tax, security, or investment advice, nor an opinion regarding the appropriateness of any investment, or solicitation of any type. Not all clients will benefit from Direct Indexing, and some may find that pooled products such as mutual funds and ETFs meet their needs. The Direct Indexing models we recommend have a $200,000 minimum per account. There is a service fee that is charged by the sub-advisor on a quarterly basis in arrears. These sub-advisor fees will be passed on to clients and will be charged in addition to the FIRM fees. Direct Indexing is usually not beneficial for smaller accounts because the tax savings are unlikely to offset the increased costs. More information about CWM’s fees, risks, and conflicts is disclosed in Part 2A of its Form ADV, which is available upon request. CWM also maintains a current copy of our ADV on the “Disclosures” page of our website at www.CWMnw.com/disclosures, a page also accessible via the footer of the site.
