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Direct ownership
Direct ownership of the securities in your managed
account or multiple-discipline account offers a number of advantages,
many of them tax-related.
You can decide when to realize a gain or take
a loss by asking the manager to sell particular securities in
your account. For example, you can offset
capital
gains
you've accrued during the year by selling
investments that will produce a capital loss, just as you can
when you own securities directly.
You can limit or avoid short-term capital gains,
which are taxed at your regular federal income tax rate, by asking
the manager not to sell specific investments until a certain date.
You can also use tax-efficient selling strategies such as keeping
track of when you purchase individual shares. With that information,
you may be able to avoid short-term capital gains tax by selling
your oldest shares first.
You don't have to worry about
phantom
gains
in a standard managed account or multiple-discipline
managed account, which may be a substantial tax risk in many mutual
funds. Since all capital gains in a mutual fund are distributed
proportionately based on the number of shares you own, you could
owe tax on gains a fund realizes even if you are a recent investor
who has not benefited from a long-term increase in the value of
the holding. Of course, phantom gains could still be a concern
in a mutual fund managed account, also known as a mutual fund
wrap. That's because you're invested in mutual funds, rather than
directly in individual securities.
Nor are you subjected — as you are with
a mutual fund — to losses that may result when other investors
pull money from an account that has lost value.
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