SMAs Offer a Smart Alternative to Traditional Investing Options

Tax efficiency is a requirement in any business arrangement. Financial managers and business owners strive to run an organization with an eye on the bottom-line- ensuring that stakeholders are satisfied

This is a motivation for business owners and investors in the industry, and it’s never wrong to strive for higher return of investment including lower taxes. The good news is that there are a diverse set of investing options that can deliver lower taxes and even higher returns. A perfect example of this investing option is called the separately managed account. This is now a favored investing direction for many who are looking for flexibility and better returns. And even though the starting investment is really high (and often reserved for moneyed investors), the promised lower taxes and better returns entice many interested investors.

Built-in tax advantage for SMA investors

This is different from the traditional mutual funds since the SMAs offer better tax advantages to its clients.  Since assets in SMAs are under the direct ownership of the individual investor, the investor can instruct the fund manager to unload specific securities to raise capital gains or limit loses. The strategy called tax harvesting intends to balance the losses and gains within a fiscal year, thus limiting the potential taxes on capital gains.

Individual ownership of stocks

Another difference is the fact that in SMAs, it is the investors who own the stocks compared to the arrangement in mutual funds where different individuals can own the stocks. Thanks to this kind of plan, the investor can request their financial managers to stay with specific stocks so that he can stay away from capital gain taxes, or even tell the financial manager to unload some of the shares of stocks in order to generate tax loss. This is not the case with traditional mutual funds where the capital gains are under the direction of the financial manager. In short, there is a flexibility given to the investor in maximizing the taxes for better profit and returns.

Managing the tax potential coupled with the ability to customize the package help make the SMAs as attractive investing options for individuals. Investors can choose the direction and the theme of the stocks, thus creating a portfolio that truly reflects investor philosophy. Investors can invest in technology or go for entertainment. The benefits of SMAs are obvious and can be seen in taxes but it can deliver more if the interested individual can work with a professional advisor.