Managing Portfolios From a Tax Perspective
Ric Edelman: You're listening to the truth about your future. And you know, we've been harping on a theme over the past couple of weeks, and it's important to do it again and with greater emphasis because this is a big deal. We know how bad the stock and bond markets have been here in 2022, and people are lamenting the losses. This is the worst year for the financial markets in more than a decade, and depending on your metric, could be several decades. And a lot of folks are lamenting all of this. But the bottom line is, while you can't control the market, you can control your behavior and your actions and your strategy. There is a huge opportunity, It's not going to last long, thanks to the lousy market we've had this year. And to help us explore all of this, I'm very happy to welcome on to the program. Michael Lane. Michael is head of iShares US Wealth Advisory at BlackRock, the world's largest money manager. Michael, thanks so much for joining me on the show.
Michael Lane: Thank you, Ric. It's great to be here.
Ric: Michael's worked with Financial Advisors for nearly three decades. I've known him forever. He helps advisors build better portfolios for their clients. He's written three books, including Secrets of the Wealth Makers, as well as tons of articles on financial planning in the industry. Michael, as I just mentioned, 2022 is the ultimate year for tax management. Talk about that.
Michael: This is an unprecedented year. I mean, we have to go back to the mid-seventies to really look at a year like this there is so much opportunity this year to avoid payments that are going to be distributed from mutual funds. You have to go back almost 50 years to have an opportunity like this to harvest losses and establish an opportunity for you to use those losses going forward for the next five, ten years.
Ric: And what is so fascinating to me is that people tend to focus on their returns. They tend to look at how much money are they making in their account. What people tend to forget is it's not what you earn those matters, it's what you keep.
Michael: That's right. And what I find amazing and Ric you and I have been doing this for a long time. I’ve been in the business 35 years, you've been in the business a little longer, I think, even than that. And most people focus on the total return, but taxes are a significant cost.
Ric: So I think this is what confounds a lot of people, Michael, is that they don't understand how in a year like this, with the stock market down, the bond market down, how can there be capital gain distributions in their funds? How can they have gains in the middle of a year of losses?
Michael: Because that mutual fund has to distribute any capital gain that they realized when they are making trades inside that mutual fund this year. And even if you have a loss, you could get a tax bill. If you don't manage the taxes before the end of the year.
Ric: It's a really weird quirk of tax law as to how this operates. And this is what confuses so many investors who are not familiar with this. And over the last ten years, we haven't had a scenario like this because the markets have been generally rising so suddenly, as you're describing, fund managers have been doing a lot of buying and selling within their portfolios. And every time they do a trade, they trigger a taxable event on you without you having any knowledge of it, control of it, awareness of it. And yet you're going to get a 1099 in early January. That's going to shock the heck out of you if you don't see it coming. And that's why you've got to take steps now. You've got to engage right now with your financial adviser to make sure that you can avoid this dilemma. And I imagine, Michael, that that's a lot of the work that you do. I imagine that you are talking with an awful lot of financial advisors about this and trying to train them because so many of them don't have the personal experience. They've never seen this either.
Michael: That's right. And it's remarkable how many financial advisors I talk to on a daily basis who have not really managed portfolios from a tax perspective. And as we approach the end of the year, you know, the term record date should become critically important to everybody.
Ric: Let's explain what that is for folks, because as you said, it is an extremely important date. So define that for us.
Michael: So record date is your going to get the distribution. And every mutual fund will tell you what the record date is. And if you hold it past that record date, you're going to receive the distribution. There's also an X date, if you it after the date, you won't get the distribution. So it's a it's a very important time of year to make sure that you sell before the record date and you buy after the X date. Otherwise, you could literally be buying a mutual fund and have no return and then have a tax bill.
Ric: That's the most amazing thing I've seen happen to people, is that they're totally unaware of the record date and the X date and they buy during that window. And what they don't realize, is even though they've owned the fund for really a few days, they're getting a tax bill as though they owned the fund for the entire year, even several years. And they're shocked that for an investment they've owned for days is saddling them with a massive tax liability. So, yeah, you're right. We need to pay attention to the record date and the X date. And this is why you do so much training with financial advisors in that in that effort. I want you to go behind the curtain for us and talk about how financial advisors are partnering with BlackRock to help their clients save money on taxes. In a year like this.
Michael: One of the most difficult things is when you have a portfolio of 10, 15, 20 different holdings for your clients and then you multiply by 100 clients one of the most challenging things it to actually evaluate what the tax implications could be for your client. How many days left do I have before I have to make a move in order to potentially save my client's taxes? And so the way that we're partnering with financial advisors, we've created a tool that's it's called the BlackRock Tax Evaluator tool. You can actually Google BlackRock tax evaluator tool and it'll come up and as a financial advisor you can enter client portfolios into that tool and it will not only tell you what the estimated capital gain for that mutual fund that you might be holding or even the ETF that you might be holding could be so you know when the record dates are , you know how much time you have before you need to make a transaction to avoid the capital gains distribution and what’s nice is it will also give you some helpful guidance on some other alternative ETFS that you could buy so that you could invest in something similar not exact, so you don't have to run into the wash sale rule.
Ric: I've used BlackRock's tax evaluator tool for my own portfolio, and you're exactly right, Michael. It is extremely effective, very helpful at enabling me to see exactly where I stand, what I can expect to have happen if I take no action and providing the ideas on actions I can take to reduce the tax liability I’d otherwise incur. So it's really important that financial advisors take full advantage of this. And again, that's the BlackRock tax evaluator tool at BlackRock.Com. And you can Google it, as Michael said, on the Internet very easily. Blackrock tax evaluator too. It's these kinds of services and support systems that BlackRock makes available to financial advisors that I think most ordinary consumers and investors are not really aware of because BlackRock often works kind of behind the scenes. You know, although BlackRock is the biggest money manager in the world and iShares the biggest ETF provider in the country, I think that it's not necessarily a household name because BlackRock and iShares, you spend most of your time dealing with the advisory community, then you do direct to investor.
Michael: That's right. And so sometimes we're not as well known as some other companies that may provide advice direct to a consumer. We don't our focus is we believe our focus is on financial advisors. We are a big believer that financial advisors add tremendous value to the end consumer, the end investor, because it is complex. I mean, when we're talking about here, Ric, we're talking about how to focus on record dates and X dates and long term gain, short term gains and distributed gains. Like it's not just so easy to pick a portfolio there’s a lot of work that has to be done that a financial advisor should be doing for the for the end investor. And so we we're a big believer in that. And our responsibility to the financial advisor community is to provide tools like the tax evaluator tool, so we make tools available for advisors so that they can provide a better investment experience for the end investor rather than working directly with the investor.
Ric: And the result is that if you're working with a financial advisor who themselves are working with iShares and BlackRock, you're getting the benefit of the world's largest money manager. We've had a long ongoing relationship with BlackRock over the years and so I am really glad to have Michael here with us on the show and I'm very excited to tell you that because this subject is so important, because it is the single best and you could even argue the only opportunity for you to do something productive and positive with your investment portfolio this year, we're going to be staging a special webinar with Michael and BlackRock. It's going to be on Thursday, October 20th at 1:00 pm Eastern. Michael and I will be spending an entire hour talking to financial advisors. Investors are welcome to attend as well, but specifically talking to advisors about these year-end tax strategy opportunities. So if you're a financial advisor, we strongly encourage you to attend this webinar. It's free. You can register online at the Truth AYF.com, and it's again going to be Thursday, October 20th at 1:00 pm Eastern. And any investor who's dealing with mutual funds and ETFs and is concerned about the amount of money you've lost this year in your portfolio and you want to figure out how you can improve on that situation. From a tax perspective, I strongly encourage you to come and join us for this webinar. Thursday, October 20, 1:00 pm Eastern with Michael Lane of BlackRock and me. And it's going to be an awful lot of fun, extremely informative, and I know you'll enjoy it. Michael, thank you so much for joining us on the program today.
Michael: Thank you, Ric.
Ric: That's Michael Lane, the head of iShares US Wealth Advisory at BlackRock. And you can get a hold of that BlackRock tax evaluator tool at BlackRock.com and we look forward to seeing you 1p.m. Eastern just register at the truthAYF.com
Michael Lane is a registered representative of BlackRock Investments, LLC, member FINRA. This material is provided for educational purposes only and is not intended to constitute investment advice or an investment recommendation within the meaning of federal, state or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for those types of advice. Transactions in shares of ETFs may result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
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