Alternative investments are growing in popularity within the wealth management industry, often inspired by pioneers like David Swensen, the godfather of alternatives. Swensen’s endowment model allocated a larger majority of assets to alternatives, reshaping portfolio construction.
While Swensen’s approach has merit for individual investors, it’s crucial to remember that endowments operate outside the two certainties of life: death and taxes. Individual investors, however, are not immune to either, and tax considerations should be front and center when evaluating an investment’s viability.
Just like fees, taxes erode investment returns. In fact, tax costs are often equal to, if not greater than, total investment management fees. Yet, tax drag is rarely scrutinized as closely. A proper assessment of tax impact starts with understanding a client’s unique tax situation by reviewing their 1099s or tax returns — a time-consuming but vital process. For the sake of