Tax-Efficient Rebalancing
Rebalancing strategies that minimize capital gains taxes by using smart trade sequencing.
What You Need to Know
Tax-efficient rebalancing preserves your after-tax returns by keeping taxable sales and realized gains as low as possible.
Tactics:
- Add new contributions to underweight allocations instead of selling winners
- Rebalance inside tax-advantaged accounts (401(k), IRA) before taxable accounts
- Harvest losses in taxable accounts to offset necessary gains
- Use distributions, dividends, and interest to buy underweight assets
- Donate or gift highly appreciated shares instead of selling them
When Selling Is Unavoidable: Prioritize long-term gains, offset with harvested losses, and spread trades across tax years to stay in lower brackets.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/rebalancing
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Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.