Potential after-tax returns of a portfolio optimized for tax management

More Info

Portfolio optimized for tax management: This portfolio seeks to maximize after-tax returns, thereby reducing the tax drag on its investment growth. The tax drag assumption measures the difference between a hypothetical investment’s pre-tax return and after-tax return. Minimizing the tax drag may help to maximize after-tax return. For this tool, tax minimization strategies such as tax-loss harvesting, lower turnover, gain deferral, etc. were used to derive the hypothetical tax drag. See the chart in the disclosures for specific tax drag assumptions, which vary by investment type.

Potential after-tax returns of a portfolio with no tax management

More Info

Portfolio with no tax management: This portfolio assumes the highest federal tax rate (short term capital gains tax rate) applied to all hypothetical investment gains over the indicated time horizon.

Opportunity

Tax management can potentially provide up to

of excess after-tax returns over a portfolio with no tax management

Initial
Investment:

YEARS INVESTED

Before taxes

Optimized for tax management (after taxes)

Opportunity Zone

No tax management (after taxes)

Opportunity

Tax management potentially provides up to

of tax savings over a portfolio with no tax management (assuming the highest federal tax bracket)

Potential cumulative tax bill for a portfolio with no tax management

More Info

Portfolio with no tax management: This portfolio assumes the highest federal tax rate (short term capital gains tax rate) applied to all hypothetical investment gains over the indicated time horizon.

Potential cumulative tax bill for a portfolio optimized for tax management

More Info

Portfolio optimized for tax management: This portfolio seeks to maximize after-tax returns, thereby reducing the tax drag on its investment growth. The tax drag assumption measures the difference between a hypothetical investment’s pre-tax return and after-tax return. Minimizing the tax drag may help to maximize after-tax return. For this tool, tax minimization strategies such as tax-loss harvesting, lower turnover, gain deferral, etc. were used to derive the hypothetical tax drag. See the chart in the disclosures for specific tax drag assumptions, which vary by investment type.

YEARS INVESTED

BARS = Annual Tax BillsLINES = Cumulative Tax Bills

No tax management

Opportunity Zone

Optimized for tax management

NOTE: Lower maximum tax rates on capital gains and dividends would make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown. Investors and advisors should consider the investment horizon and income tax brackets, both current and anticipated, when making an investment decision as these may further impact the results of the comparison.

Other Important Information

IMPORTANT: The projections or other information generated by the Value of Tax Management tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The results of the calculations used to generate the tool outcomes may vary with each use of and over time.

Allocations represent sample portfolios depicted by asset class. These allocations cannot be invested in directly. Actual combinations of underlying assets selected will depend upon investment objectives and will differ from the illustrated combinations.

Please note all information shown is based on assumptions. Expected returns employ proprietary projections of the returns of each asset class. We estimate the performance of an asset class or strategy by analyzing current economic and market conditions and historical market trends. It is likely that actual returns will vary considerably from these assumptions, even for a number of years. References to future returns for either asset allocation strategies or asset classes are not promises or even estimates of actual returns a client portfolio may achieve. Asset classes and/or strategies shown are broad general categories, which may or may not correspond well to specific products. This tool uses parameters (expected return and correlations) that describe the future expected behavior of the investment opportunities shown.

Financial models make assumptions regarding the actual mix of underlying assets and other parameters at a specific point in time, accordingly there are no assurances that the outcomes shown stated in this material will be met. Also, the asset classes and/or allocations may not coincide with actual investment results. Russell Investments' strategic planning assumptions are updated at least annually.

By limiting the number of parameters to the broad asset classes of U.S. Small Cap Equity, U.S. Large Cap Equity, U.S. Equity, Non-U.S. Equity, Fixed Income, Global High Yield Bond, Global Real Estate, and Infrastructure each consisting of structurally distinct securities, Russell Investments attempts to minimize forecast uncertainty. Other investments not considered may have characteristics similar or superior to those being analyzed.

This analysis does not search for, analyze or favor certain securities or investments.

Russell Investments' Capital Market Forecast Assumptions

Return Standard Deviation
U.S. Small Cap Equity 9.2% 22.1%
U.S. Large Cap Equity 7.7% 17.8%
U.S. Equity 8.0% 18.1%
Non-U.S. Equity 8.2% 18.4%
Fixed Income 4.4% 3.7%
Global High Yield Bond 6.5% 11.6%
Global Real Estate 7.5% 20.2%
Infrastructure 7.8% 16.7%

20-year forecast data as of December 2018

These Asset Class Capital Market Forecast assumptions are created by using a globally integrated perspective, country-specific equity risk premiums, a comprehensive term structure for determining yield curves, distributions of asset returns, sensitivity to market conditions and a building block approach to individual asset classes. The forecast assumptions take into account the dynamic behavior of returns using a statistical factor model that incorporates random (i.e. time-varying) volatility. The model includes a number of initial conditions, such as nominal and real yield curves, equity dividend yields, credit spreads and exchange rates. The creation of the Asset Class Capital Market Forecasts also incorporate historical index data for the Russell 3000®, the Russell Top 200® Index, the Russell 2000® Index, market-cap weighted combination of regional equities excluding US (this is not EAFE) for International Developed Equity, FTSE EPRA/NAREIT Developed Real Estate Index, S&P Global Infrastructure Index, various Barclays Bond Indices for Fixed Income, and bond prices based on 150 securities for cash. Global High Yield Bond forecasts are constructed using a market-cap weighted combination of High Yield from Europe, the UK and the US based on High Yield characteristics from Barclays. Forecasts are updated periodically, because our assumptions about the capital markets evolve over time.

Indexes are unmanaged, and do not reflect the deduction of any management fees, and cannot be invested in directly. They are provided for general comparison purposes only.

Index performance is not indicative of any specific investment, and should not be viewed as a representation of future results. Deductions for fees and expenses are not reflected in index returns. If they were deducted, returns would be lower. Index return information is provided by vendors and although deemed reliable, is not guaranteed by Russell Investments or its affiliates.

Asset Allocation Assumptions

Conservative Asset Allocation Moderate Asset Allocation Balanced Asset Allocation Growth Asset Allocation Aggressive Asset Allocation
U.S. Equity 12% 22% 35% 48% 56%
Non-U.S. Equity 7% 12% 20% 26% 30%
Fixed Income 64% 50% 31% 13% 0%
Global High Yield Bonds 13% 12% 10% 9% 8%
Global Real Estate 2% 2% 2% 2% 3%
Infrastructure 2% 2% 2% 2% 3%

Tax Efficiency Assumptions

Tax Drag Assumption*
Conservative Allocation 18 basis points (0.18%)
Moderate Allocation 25 basis points (0.25%)
Balanced Allocation 27 basis points (0.27%)
Growth Allocation 35 basis points (0.35%)
Aggressive Allocation 42 basis points (0.42%)
U.S. Small Cap Equity 41 basis points (0.41%)
U.S. Large Cap Equity 27 basis points (0.27%)

*The tax drag assumption measures the difference between a hypothetical investment’s pre-tax return and after-tax return. Minimizing the tax drag may help to maximize after-tax return. For this tool, tax minimization strategies such as tax-loss harvesting, lower turnover, gain deferral, etc. were used to derive the hypothetical tax drag.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do no typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments' management.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.

End investors should consult with their financial and tax advisors before undertaking any strategy that involves tax sensitive investing.

Copyright © Russell Investments Group, LLC. 1995-. All rights reserved.

Russell Investments Financial Services, LLC, member FINRA, part of Russell Investments.

First used: September 2014
Revised: April 2019
RIFIS 21464