Tax-Smart Asset “Location” can Save Big Bucks

The last time you heard the phrase “location, location, location” was probably from your real estate agent when buying or selling your home. But when was the last time you heard this same mantra from your investment advisor or financial planner?

Asset location, not to be confused with asset allocation, is a term for strategically locating your investments into different investment accounts. By strategically placing assets into the correct accounts, the tax efficiency and overall after-tax investment returns of the entire (taxable and non-taxable) portfolio can be optimized. The resulting, highly tax efficient, portfolio may save a tremendous amount of tax dollars over a long-term investment horizon.

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How Will New IRS Audit Procedures Impact Tax Exempt Partners?

Earlier this year, Congress enacted new IRS audit procedures applicable to partnerships. The new rules, which apply to partnership returns filed after 2018, are expected to have a significant impact on tax exempt partners.

Background

As part of the desire to diversify portfolios, tax exempt organizations have increased their exposure to alternative investments. Many of these investments are pass-through investments either partnerships or limited liability companies taxed as partnerships. Because they are taxed as partnerships, that is what is relevant for purposes of this new law and this discussion. Partnership investments are unique because income, expenses, and other separately-stated tax items are collected by the partnership level and reported to the partners.

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Selecting an Investment Advisor: Ensuring the Long-term Success of Your Mission

By Guest Contributor Scott Severs CFA, CFP

Selecting an investment advisor for an endowment portfolio can be a daunting task for many organizations. Some boards may feel that they lack the investment expertise to begin the process. Others may score high on the financial acumen scale, but either can’t agree on a strategy that makes sense, or have a difficult time prioritizing this activity.

Whatever the reason, here are some suggestions that can help your board get unstuck, select an investment advisor, and proceed with the rewarding experience of managing an investment portfolio properly.

Develop an Investment Policy Statement

Managing an investment portfolio means coming to some agreement about risk and responsibilities.

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Will the Delayed Fiduciary Rule Affect Investors?

By Megan Kuchan, CPA

Updated on February 14, 2017, to add the latest information on the delay on ruling. See the end of the article.

On February 3, 2017, President Donald Trump signed a directive to delay implementation of the Department of Labor (DOL) fiduciary rule. Originally set to be effective this coming April, the postponement will allow the Trump administration additional time to review the potential changes.

In development for several years, the fiduciary rule was one of the former administration’s triumphs. Former President Barack Obama heralded the rule as necessary for protecting investors and retirees from investing in products that have unacceptably high fees and hurt overall savings.

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Two Steps to Assess Your Vulnerability to a Liquidity Crisis

At the end of fiscal year 2008, Harvard University had an investment portfolio of over $36.9 billion. Yet one year later, they were in crisis, with not enough cash flow available for operations. The University had to borrow to continue operating. Why?

Not only had the recession hit and the portfolio lost $11 billion, but Harvard was facing a liquidity crisis of massive proportions. What caused it and how could it have been prevented? By answering these questions, you may gain some insights that will help you prevent your own liquidity challenges.

Here was the picture at the end of the fiscal 2008 year for Harvard:

  • They had a leveraged portfolio with an asset allocation model that called for the allocation to cash to be at minus 5%.

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