Tactical asset allocation implies that you are rotating your assets. Whenever you do so, you realize profits and losses, resulting in taxation. Therefore, our portfolios work best in tax-deferred accounts, e.g., a typical retirement account. However, there are two avenues to use tactical asset allocation in a taxable account:
Tax-efficient portfolios
These portfolios trade less often or use advanced hedging techniques to avoid selling assets. An example is our All-Stars Tax-Efficient portfolio.
High-growth portfolios
These portfolios offer outsized returns that go far beyond the performance of buy-and-hold. While investing in these portfolios will result in a high tax burden, their returns are well worth it. An example is our All-Stars Stocks portfolio.
Important Tax Considerations
In general, we pay the individual tax rate for short-term capital gains, which tends to be higher than for long-term capital gains: The latter rate maxes out at 20%, based on your income. Wash sales disallow investors to harvest tax losses when entering substantially identical securities within 30 days. Both tax implications require consideration.
We provide more detailed information about each portfolio's tax considerations at the bottom of the portfolio's page.
Example TuringTrader's VIX Spritz:
We provide more information on tax-efficient investing.