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At 55ip, one of our core competencies is helping advisors unlock the use of model portfolios for taxable accounts.  After a long bull market and the “Covid Crash,” a sharp recovery propelled the stock market to even higher record levels. As a result, accumulated capital gains and potential tax obligations have prevented many investors from updating their investment strategies or making the move into model portfolios.  Some advisors may not be aware that there are technology solutions that can help manage this process and optimize the balance between taxes and portfolio transition. 

Often, advisors intend to bring a large number of accounts onto the 55ip platform, but like all of us in a Covid-affected world, everyone seems busier, and there are an array of reasons why getting these new accounts activated in tax transition doesn’t seem as urgent as it might:

  • Maybe the advisor feels like early 2020 was the prime time to harvest losses, and they’ve missed the opportunity, so there is no hurry now
  • Maybe the advisor feels like accounts are up so much, it will take a big market decline before harvesting is possible, so there is no hurry now
  • Maybe the advisor feels the economy and the Fed are likely going to keep fueling this stock market rally, so there is no hurry now

So, what is the downside of waiting until things slow down to deal with the administrative aspects of getting all those accounts set up on the platform? 

There may wind-up being no downside – perhaps this market roars ahead for another year or two, fueled by pent-up post-Covid demand and Fed liquidity.  Perhaps no new legislation passes that makes capital gains tax rates higher next year than they are this year, which would make transitions to new strategies even harder.

Or is this an example of unintentional market timing? That may be a lot to take for granted in a world where:

…buyers are having a hard time finding homes because they are getting priced out in bidding wars that see many houses sell above asking price

…a new digital currency, with a highly debated future value, makes daily headlines for hitting ever higher records while plunging in between the highs as it experiences rarely seen levels of volatility

…the stock market continues to break records despite uncertainty as to how much lasting economic damage has actually been caused by the pandemic

…tax policy changes will be actively debated, possibly into next year, perhaps creating an opportunity to transition assets this year at a lower tax rate.

Typically, there is one very fruitful stretch for tax loss harvesting per bull/bear cycle, but the brief bull market interruption of 2020 made it what the WSJ called the “perfect” year for tax loss harvesting.

Investors were able to book tax losses and then watch their holdings quickly rise to record highs, while they kept the tax benefit, resulting in a significant boost to their after-tax returns.

In early 2020, the market was coming off a very strong 2019 and a strengthening economy seemed to indicate more of the same, so surely many advisors felt the same lack of urgency to get accounts started on their tax transitions.  However, those that moved more expediently created significant value for their clients, and those accounts that were newer had a cost basis closer to market levels on those portions of the portfolios that had already transitioned.  When those more current cost basis positions declined with the market, advisors were able to use systematic tax loss harvesting to leverage those losses to offset gains that were needed to transition the rest of the portfolio. 

That effect, combined with the fact that the market decline made the imbedded capital gains smaller, allowed nearly 70% of the accounts in tax transition on the 55ip platform to fully complete their transition over a two-month period* without incurring any additional net out of pocket taxes.

At some point, it seems likely this cycle will quite possibly be punctuated with another big harvesting opportunity, and the only thing we know about the “when” is that we have no idea when that will be.

But there is tremendous potential benefit to accounts in tax transition being well-positioned to seize that opportunity.  Tax loss harvesting can cushion the pain of a down market by extracting tax benefit from losses, and it can use that tax benefit to offset gains and further tax transitions.  Don’t let unintentional market timing keep your clients from seizing that opportunity.

*Based on all 55ip accounts in tax transition between February 1, 2020 and March 30, 2020.

For information on partnering with 55ip or leveraging our tax-smart transition technology, contact our Advisor Success Team at (617) 960-9559 or at

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