ENHANCED structure
“It’s not what you make, it’s what you keep” - Kiyosaki
The Why
Navigating global capital markets is one challenge; outperforming after taxes presents an entirely different set of obstacles. Unfortunately, post-tax returns don’t receive enough attention in our industry. Is it because investment managers (CFAs) and financial planners (CFPs) are primarily compensated based on gross pre-tax returns? Or is it simply a matter of lacking the right tools? At Investate Wealth, both our focus and skillset is aligned with what ultimately matters for you. Investors should focus on post-tax net returns, because, as the saying goes: “It’s not what you make, it’s what you keep.”
And it’s never been more true. Over the past 15 years, nearly every asset class has experienced substantial wealth creation, resulting in significant unrealized capital gains—from public stocks and private equity to personal businesses, real estate holdings, and even physical gold and digital assets like cryptocurrency. Historically, investors looking to preserve gains or adjust exposures had to contend with capital gains taxes come April 15th. Fortunately, today’s strategies have evolved to provide opportunities to reduce or even eliminate those taxes upon liquidation—without requiring irrevocable gifting or expensive legal and trust structures.
And it’s never been more true. Over the past 15 years, nearly every asset class has experienced substantial wealth creation, resulting in significant unrealized capital gains—from public stocks and private equity to personal businesses, real estate holdings, and even physical gold and digital assets like cryptocurrency. Historically, investors looking to preserve gains or adjust exposures had to contend with capital gains taxes come April 15th. Fortunately, today’s strategies have evolved to provide opportunities to reduce or even eliminate those taxes upon liquidation—without requiring irrevocable gifting or expensive legal and trust structures.
The Evolution
1970s: Complex Partnerships
Tax changes and financial de-regulation in the 1980s fueled a variety of investments from private equity, leveraged buyouts, oil and gas and real estate partnerships. Investors faced complex reporting, limited transparency, illiquidity, and high fees.
1990s: Exchange Traded Funds
Exchange-traded funds (ETFs) were developed as an alternative to mutual funds. They started trading in 1993 to provide access to passive index funds for individual investors. Though their rise was slow initially, the ETF market has grown enormously in the last 20 years. ETFs now cover everything from broad market indexes to niche sectors or alternative asset classes traded by a relative few.
2010s: Direct Indexed
This structure allows investors to replicate a market index by individually owning the underlying stocks—an approach that offers tax advantages previously out of reach for retail investors. By holding each security directly, investors gain the flexibility to sell specific stocks at a loss to offset gains, enhancing tax planning. This strategy, known as tax-loss harvesting, can generate additional “tax alpha” compared to traditional investment vehicles.
2025: Enhanced Indexed
The newest advancement builds on the limitations of traditional Direct Indexing and earlier tax planning strategies—unlocking the ability to accelerate and amplify inherent tax advantages. By incorporating a 225/125 long-short portfolio structure, investors maintain a market-neutral exposure to the index while significantly boosting the opportunity and dollar value of tax-loss harvesting (e.g., $350 vs. $100). This enhanced framework enables tax efficiency that can be sustained indefinitely.
1970s
1980s
1990s
2000s
2010s
2020s
Today
1980s: Mutual Funds
With the 1980s and '90s came an unprecedented bull market and previously obscure fund managers like Peter Lynch became household names. While mutual funds trace their history back to the 1920s, the no-load fund and the rise of Vanguard helped further democratise access to pooled investments with professional managers.
2000s: Seperately Managed Strategies (SMA)
The ownership structure of an SMA offers investors certain tax benefits compared to a similarly invested mutual fund. In a mutual fund, investors may incur tax liabilities on net capital gains embedded in the portfolio—even if those gains were realized before the investor acquired shares. In contrast, an SMA eliminates these "unearned capital gains" because the investor directly owns the underlying securities
2020s: Enhanced Active
The latest evolution further refines portfolio design to elevate the investment experience for taxable investors. Building on the Enhanced Index strategy, this approach shifts to a more active investment framework, utilizing a distinct set of underlying holdings that unlock new tax benefits—including the ability to offset ordinary income.
1970s: Complex Partnerships
Tax changes and financial de-regulation in the 1980s fueled a variety of investments from private equity, leveraged buyouts, oil and gas and real estate partnerships. Investors faced complex reporting, limited transparency, illiquidity, and high fees.
1980s: Mutual Funds
With the 1980s and '90s came an unprecedented bull market and previously obscure fund managers like Peter Lynch became household names. While mutual funds trace their history back to the 1920s, the no-load fund and the rise of Vanguard helped further democratise access to pooled investments with professional managers.
1990s: Exchange Traded Funds
Exchange-traded funds (ETFs) were developed as an alternative to mutual funds. They started trading in 1993 to provide access to passive index funds for individual investors. Though their rise was slow initially, the ETF market has grown enormously in the last 20 years. ETFs now cover everything from broad market indexes to niche sectors or alternative asset classes traded by a relative few.
2000s: Seperately Managed Strategies
The ownership structure of an SMA provides an investor some tax advantages over a similarly-invested mutual fund. After purchasing mutual fund shares, an investor will have a tax liability for any net capital gains in the mutual fund portfolio, even if the investments the fund sold for a gain were purchased before the investor owned the shares of the fund. This is known as an "unearned capital gain", and has a negative effect on the investor's return from his mutual fund investment. However, because assets in an SMA are owned by the investor directly, unearned capital gains are not possible. Further, an investor in an SMA typically has the ability to direct theinvestment manager to sell individual securities with the objective of raising capital gains or losses for tax planning purposes.
2010s: Equity Trading Costs
In 2013, the firm Robinhood introduced the first commission free trading application, which supported only taxable accounts. Over 6 million new accounts were opened unitl Schwab and Fidelity introduced commission free trades in 2019. This dramatically reduced the cost of running SMA’s, and Direct Index equity strategies
2020s: Direct Indexing
For retail investors, the evolution of Direct Indexing represents a significant expansion of their investment options. They now have access to strategies that were once reserved for the largest institutional investors. This democratization has several important implications: The ability to implement tax-loss harvesting strategies that were previously available only to the wealthy. Retail investors can now capture tax alpha in ways that weren’t possible with traditional investment vehicles. Direct ownership of securities creates greater control over investment outcomes. This ownership brings benefits in terms of tax management, corporate governance participation, and portfolio customization.
2025: Enhanced Direct Indexing
Enhance the direct index structure by introducing a long-short strategy (while still maintaining a neutral allocation to the index—or a beta of one) we not only increase the gross dollar amount ($200 vs. $100) to harvest losses but also can harvest in any market environment. This structure allows for the acceleration or enhance-ment of the direct indexes tax harvesting benefits.
The How
PRIORITIZING WHAT YOU KEEP
Since the Global Financial Crisis over fifteen years ago, investors have seen substantial wealth creation across various assets, leading to significant unrealized capital gains in a variety of assets including your favorite technology/growth stock, your private company or private equity portfolio, your primary residence or vacation home, as well as physical art and digital (crypto) assets.
POTENTIAL BENEFITS
Tax benefits can now extend beyond capital gains and can be directly applied against income. But unlike traditional tax shelters with direct ownership of real estate, today’s benefits are not limited to passive income and can instead now go against 1099 and W2 income allowing for meaningful tax offsets and planning opportunities.
COORDINATING PLANNING OPPORTUNITIES
- Back-door ROTH, ROTH conversions
- Sale of a business
- Unwinding 1031 exchanges
- Highly appreciated stock
- Unwinding annuities
- Sale of a business
- Unwinding 1031 exchanges
- Highly appreciated stock
- Unwinding annuities
EXPERIENCED RESOURCES
You are the CEO, but you will have us as your personal Chief Operating Officer, coordinating your Financial, Estate, & Investment Plans. We will also serve as your Chief Investment Officer, helping to guide you through global capital markets to find the best opportunities for your unique situation with a laser-like focus in maximizing what you keep by prioritizing after-tax returns and after-tax net worth—or perhaps Net Net Worth.
The Takeaway
By enhancing the structure of your investment portfolio, you can reduce or eliminate a costly and unwanted business partner—Uncle Sam. The outcome? A significant increase after-tax wealth (Growth), a heightened after-tax retirement lifestyle (Income) and long-term wealth retention (Preservation) for both future business cycles and future generations.
Prioritizing after-tax returns allows investors to maximize their after-tax net worth—or what we call Net Net-Worth.
GET IN TOUCHPrioritizing after-tax returns allows investors to maximize their after-tax net worth—or what we call Net Net-Worth.
Our Solutions
GROWTH
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INCOME
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PRESERVE
Today’s investors have to contend with extreme price movements in all types of asset classes, global wars, debts/deficits all in a volatile political setting, plus an eventual recession (at some point) all amid elevated valuations. I think its safe to say that after 15 years of massive wealth creation in nearly everything, it may be time to start focusing on wealth preservation—or at least protecting those massive gains. But preservation & protection usually comes with a hefty tax payment. Not anymore.
Contact Us
Pacific Palisades
Newport Beach
San Diego Headquarters:
6005 Hidden Valley Rd,
Carlsbad, CA 11211
Newport Beach
San Diego Headquarters:
6005 Hidden Valley Rd,
Carlsbad, CA 11211
443-453-5854
info@investatewealth.com
