Capital Management

Quantum Strategies Wealth Advisory’s investment approach is aimed at improving portfolio returns through sound tax management.

We strategically harvest stock losses for tax deductions by selling depreciated stocks as opportunities occur. Whenever the stock market goes down, investors get frustrated. But there is a light in an otherwise gloomy situation, the option to bolster after-tax stock returns through a concept called tax-loss harvesting.

Through opportunistic tax-loss harvesting, you can increase your returns indirectly especially early on in a portfolio’s life. This strategy, described below, provides a means to receive extra returns in order to maximize wealth.

Quantum Strategies Wealth Advisory’s trading approach enables us to identify trades that can improve their tax position.

Realize a short-term loss before it becomes long-term.
Since the tax rate for short-term gains is significantly higher than that for long-term gains, it is often wise to realize losses on lots before they become long-term holdings, thereby lowering short-term gains. In contrast, waiting for a winning position to become a long-term holding allows investors to take advantage of the lower tax rate, therefore the tax savings can be significant. We set alerts to monitor investor’s positions in their accounts that are approaching long-term status, displaying market value, and current gain/loss against that value.

Identify investments for the “Double Down” strategy.
If the long term fundamentals of the company are still favorable but there is an exogenous factor that causes unwarranted short term drop in the value of the stock, we implement a “Double Down” strategy. We take positions that are currently in a deep losing state and double their holdings in them. After waiting 31 days to be outside the wash sale window, those shares are then sold at a loss. This strategy allows us to recognize losses for tax purposes without losing our stake in the position.

Sell partial positions using Specific ID.
Many investors fail to maximize the benefits of selling specific lots. If you hold multiple lots of the same security, selling only part of the position, without specifying which part, will result in FIFO accounting (First-In, First-Out). However, in most instances it is wiser to sell shares that have the highest unit cost, thereby minimizing gains and the tax burden. Even mutual funds can be sold using Specific ID rather than FIFO or Average Cost.

Use “Sell Grades” to sell optimal lots first.
We grade the tax consequences of selling your investments and rank them accordingly. The higher the “Sell Grade” value, the more favorable the trade is from a tax standpoint. We assign a “Sell Grade” to each holding and then rank them from highest Sell Grade to lowest Sell Grade.

– A Sell Grade greater than 1.0 will save you tax dollars.
– A Sell Grade of 1.0 is neutral and has no tax impact.
– A Sell Grade less than 1.0 will cost you tax dollars.

Our Sell Grade is derived from a proprietary algorithm that considers each tax lot’s adjusted cost basis (i.e. the original cost basis adjusted for all wash sales and/or corporate actions); current holding period (i.e. long-term or short-term); current market price; and most importantly, your personal tax rate and previous realized gains/losses which include the character of those gains and losses. In this way, our Sell Grade is customized to each individual’s portfolio and tax situation.

Recognize losses
The IRS allows investors to write-off a maximum of $3,000 in losses each year. With our tax optimization tool, we enter their carryover losses to determine the impact of their gain/loss.

Example: Imagine that on the first day of any given year you invest $100,000 in the U.S. stock market via an exchange-traded fund (ETF), like SPDR S&P 500. Let’s assume this ETF trades off by 10%, falling to a market value of $90,000. Rather than feeling sorry for yourself, you can sell the ETF and reinvest the $90,000 back into the stock market.

Although you are keeping your market exposure constant for IRS tax purposes, you just realized a loss of $10,000. You can use this loss to offset taxable income which leads to incremental tax savings or a bigger refund. Since you kept your market exposure constant, there really hasn’t been a change in your investment cash flow, just a potential cash benefit on the tax return.

Now let’s say that the market reverses course and heads north, surpassing your initial investment of $100,000 and closing out the year at $108,000, yielding the average 10% pretax return when adding a typical 2% dividend yield. For ease of calculation, let us assume that your marginal tax rate is 50%. Had you done nothing except buy-and-hold in the aforementioned scenario, you would have an after-tax return of 9% represented by an 8% unrealized investment gain plus a 1% dividend gain (2% dividend less 1% paid in tax to the government due to a 50% marginal tax rate).

However, if you sold and replaced your stock market position (‘harvested’ the tax loss), you would also have a loss of $10,000 that you can use to offset some ordinary income or other taxable gains from other areas on your tax return. At the assumed marginal tax rate of 50%, this would be worth $5,000 in income tax savings or another 5% return on the original $100,000. Thus, your net-net after-tax return would now be 14% (9% + 5%).

There are some limitations on this activity. Let’s take a closer look at a few of the limitations and regulations surrounding your taxable gains.

IRS Regulations
First, the IRS will not let you simply buy an asset and sell it solely for the purpose of paying less in tax. Thus, on Schedule D of the 1040 tax form, the loss will be disallowed if the same or substantially identical asset is purchased within 30 days. This is called the “wash-sale rule.”

As a counter to this, a similar asset of high correlation (but cannot be “substantially identical”) may be made to keep the market exposure constant if you don’t want to wait the 30 days. Correlation is the key here, as many assets move up and down together almost in tandem. Replacing the SPDR S&P 500 with another U.S. ETF, like SPDR Dow Jones Industrial Average would get you almost the same market representation.

Individuals everywhere are concerned about our country, the world, its people, and the environment. For these and other reasons, more people are investing their money to get back more than just a monetary return on their investment. Many are investing to make a positive impact in our country and around the world, as well as to feel that societal concerns should be made an important part of their investment focus.

Socially Responsible Investing (SRI) is sometimes referred to as “sustainable”, “socially conscious”, “mission”, “green”, or “ethical” investing. In general, socially responsible investors are looking to promote concepts and ideals that they feel strongly about.

The SRI approach is to invest in stocks and bonds from those companies, counties, or municipalities that promote certain actions or eschew those which participate in offending actions. It is not unlike the carrot and the stick premise; you reward those that you agree with by investing in their companies (the carrot) and avoid buying shares of those companies that offend your core values (the stick).

Quantum Strategies Wealth Advisory can position your fiduciary responsibilities with the largest amount of relief available with our 401k Administrative Services. Our retirement planning experts work with you to review your existing plans or assist with establishing new plans. Quantum’s 401k consulting group acts as the investment fiduciary 3(38) and works with the board to determine if an administrative fiduciary 3(16) is desirable.

Offering a retirement plan to your employees can be a competitive component in assisting with employee retention. Making a retirement plan a part of your employee’s benefits package can position you to attract and retain top talent. The employees participating in the plan, their beneficiaries, and you, the employer, all benefit when a retirement plan is in place. Learn more here.

Administering the plan and managing the assets require certain actions and involve specific responsibilities to be in compliance with ERISA. One requirement has been expanded as recent regulations require more comprehensive written disclosures by service providers to 401k plan fiduciaries. The result has been an additional burden on the plan fiduciary to act prudently and solely in the best interest of the plan’s participants and beneficiaries when selecting or monitoring plan service providers.

This increased level of liability positions an employer as the plan fiduciary with needing to provide employees access to specific, unbiased investment advice. Meeting your fiduciary responsibilities can be challenging and complex, with an increasing level of liability and risk of lawsuits for the plan sponsor.

Also referred to as the outsourced chief investment officer (OCIO) model, implemented consulting, discretionary outsourcing, or fiduciary management. Our approach positions Quantum Strategies Wealth Advisory as your professional investment staff, supplying financial advice, and managing your investments. We provide the fiduciary oversight on selecting the proper asset allocation mix with a keen eye for implementing and monitoring the performance and risk of your investment portfolio. This provides our clients with the asset management and staff resources to take on tactical investing and realize opportunistic dealings.

We focus on your total portfolio performance, beyond simply assets and asset allocation. This approach combines asset allocation, manager selection, and dynamic portfolio management. We listen and respond to your needs by regularly inspecting and analyzing the key factors that can affect your portfolio, making sure our decisions are based on strong evidence in the pursuit of successful long-term outcomes. You will benefit from our experiences working with some of the world’s most sophisticated investors.

With a client-focused approach to investing, Quantum Strategies Wealth Advisory provides sound, individually designed investment strategies to meet specific income and growth objectives. We combine the global reach of Wall Street with the personal approach of Main Street.

We work with you to determine your requirements for income, growth, liquidity, and preservation of capital while analyzing your risk tolerance, time, and tax constraints. The financial picture that emerges serves as a framework for a portfolio that fulfills your investment objectives. From an institutional perspective, we offer a multi-asset approach powered by core capabilities created in response to customers’ needs: capital market insights, manager research, portfolio construction, portfolio implementation, and indexes.

From a personal perspective, we analyze your investment objectives in relation to your existing portfolio, other liquid, and non-liquid assets. In effect, we evaluate your entire personal balance sheet to determine your total risk exposures.

– Once we have a complete understanding, we develop an investment strategy to be consistent with your objectives.
– Utilizing a unique investment selection process, we evaluate companies and funds (managed externally and internally) to fit your growth and fixed income needs.
– Working as independent advisors, we are able to give clients objective advice and choose investment options in order to build a diversified portfolio.
– We are proactive and continually review your portfolio to monitor risk and return.
– We look for high-quality investment options that provide consistent growth over time.
– We communicate regularly with clients, providing updates, trends, and other important financial news as well as quarterly reports.

We recognize the money we manage represents the hard work and savings of real people like you. If your institution represents a non-profit organization, we understand that the money needs to be there in the long run to fulfill important missions. We understand what is at stake, that is why we work to deliver real, lasting value.

INVESTMENT PHILOSOPHY
Our team believes that markets contain inefficiencies that can be exploited by hedge fund managers who exhibit the skill necessary to deliver excess returns. We believe that the global, dynamic, and repeatable research process can identify such investment skills.

We believe that we are able to identify the most talented managers across what we consider to be the best strategies globally and ensure that we capture these managers during their best periods. We are able to manage investment risk through ongoing monitoring and due diligence which helps us to avoid unrewarded risks.

INVESTMENT PHILOSOPHY
Private equity investing should always deliver an illiquidity premium when compared against public equity market investing. Our investment-led process has been refined to focus on high-conviction private equity strategies with risk-return profiles that have rewarded illiquidity in the past, and where we believe that a supply and demand imbalance between the need for investment and available capital will persist in the future.

To deliver an illiquidity premium, we are focused on what we believe to be best-in-class investments, giving you choice on how to access Private Equity and how involved you want to be in the investment decisions.

PRIVATE EQUITY STRATEGY SELECTION
We focus on investing in strategies where there is a genuine need for private capital and which we believe can compensate for the illiquidity associated with private equity investing. We have the depth of knowledge and we are able to dedicate significant time into screening the manager universe in these four areas to ensure access to ‘best-in-class’ managers globally.

MANAGER SOURCING AND SELECTION
Our team’s manager selection process is founded on a wealth of experience, strong industry knowledge, and a comprehensive due diligence process. This process, combined with our sector expertise, facilitates the identification and selection of what we consider to be the best and most appropriate managers.

EXCLUSIVE INVESTMENTS
Our team’s expertise in their core areas of conviction often means we are able to gain access to exclusive, institutional-quality opportunities with leading private equity groups. We are then able to deliver these opportunities to our clients in a variety of ways according to their needs and desire for involvement.

PARTNER AND CONSULTANT
We take a consultative, partnership-driven approach to help ensure that you have access to what we believe to be best-in-class real estate investment opportunities globally. These opportunities include commercial real estate in global gateway cities, niche hard assets, and diversified fund opportunities delivered by carefully selected sector experts.

RESEARCH AND ASSET ACQUISITION
By identifying and partnering with local asset managers in target regions, we can often uncover compelling opportunities in highly restrictive and segmented markets.

STRONG STRUCTURING CAPABILITY
You benefit from our strong structuring capability which seeks to maximize asset efficiency and investment return potential with a broad and comprehensive range of support services.

INVESTMENT PHILOSOPHY
We believe that inefficiencies exist in opaque and illiquid real estate markets, and using local networks and asset managers can help to uncover compelling and mispriced investment opportunities. As mispricing is both capital and income related, this creates an opportunity for enhanced returns and low volatility which – coupled with creative deal sourcing, intelligent structuring, and management – can unlock and maximize hidden value potential.