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The Journal of Wealth Management

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Primary Article

Know When oo Hold 'Em and When to Fold 'Em

The Value of Effective Taxable Investment Management

Jeffrey E. Horvitz and Jarrod W. Wilcox
The Journal of Wealth Management Fall 2003, 6 (2) 35-59; DOI: https://doi.org/10.3905/jwm.2003.320481
Jeffrey E. Horvitz
Vice chairman of Moreland Management Company in Beverly Farms, MA.
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  • For correspondence: jeh@mmcmass.com
Jarrod W. Wilcox
President of Wilcox Investment, Inc. in Newton, MA.
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  • For correspondence: jwilcox@wilcoxinvest.com
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Abstract

Using historical returns of the S&P 500, the authors simulate the after-tax return enhancement from minimizing short-term capital gains, tax deferral of long-term gains, high cost-basis tax lot sales, and tax-loss harvesting. They also demonstrate the relationship of the estate tax to these investment strategies. They show that tax deferral is not an interest-free loan from the government, but rather that the tax code operates more like a partnership carried interest and that the mechanism of tax deferral is a non-linear function of different compounding rates. They extend prior research showing that tax-sensitive investors can reap significant after-tax return advantages that are hard to match with conventional active management. In an addendum, they analyze the effect of the newly enacted tax rates under the Jobs and Growth Tax Relief Reconciliation Act of 2003, and find that the benefits of tax deferral are less, but remain significant.

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Vol. 6, Issue 2
Fall 2003
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Know When oo Hold 'Em and When to Fold 'Em
Jeffrey E. Horvitz, Jarrod W. Wilcox
The Journal of Wealth Management Jul 2003, 6 (2) 35-59; DOI: 10.3905/jwm.2003.320481

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Know When oo Hold 'Em and When to Fold 'Em
Jeffrey E. Horvitz, Jarrod W. Wilcox
The Journal of Wealth Management Jul 2003, 6 (2) 35-59; DOI: 10.3905/jwm.2003.320481
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