InverseWealth Tax-Aware Long/Short

Aggressive loss harvesting. Bigger tax savings.

For high-income earners about to realize large capital gains, when regular tax-loss harvesting isn't enough.

Talk to an adviser Get the case study

CA Registered Investment Adviser
Fiduciary
Assets held at Charles Schwab / Altruist
SIPC protection

The benefit

of your investment harvested as tax losses

Losses you can use to offset your capital gains.

At the highest leverage in a 2023 study; results vary. Hypothetical. See sources below.

Managing wealth for leaders at

CoinbaseMetaEVERPUREAdobeRakutenUniphoreTerret.AINew RelicCiscoBlock

Who it's for

When Long/Short helps most

Low-basis concentrated stock

Years of RSUs or founder shares in one company, worth millions and almost all gain.

Selling a business

Build up losses before the sale, then use them against the gain when it lands.

Large recurring gains

Real estate, private investments or fund distributions that create big gains year after year.

A big one-time sale

A large stock, RSU or home sale that leaves you with a big capital gain to offset.

How it works

More positions at work. More losses to harvest.

For every $100 you invest

$100 in stocks

Direct Indexing

+$30 more stocks$100 in stocks

$30 short

130/30 Long/Short

Your money in the market: $100 vs $100; The same in both.
Money working to find tax losses: $100 vs $160; 60% more chances to harvest.

The extra $30 of stocks is bought with borrowed money. A short position is a bet that a stock will fall. The extra stocks harvest losses when prices fall; the short positions harvest losses when prices rise.

1
Start with the index
Your portfolio is built from the stocks in an index such as the S&P 500, so it aims to track the market.
2
Add longs and shorts
Margin (borrowing) adds extra long positions and an equal amount of short positions. Market exposure stays near 100%.
3
Harvest losses both ways
Longs create losses when stocks fall. Shorts create losses when stocks rise. More positions at work means more losses to harvest.

Want the research, the costs and how the exit works?

Read the complete guide

Hypothetical case study

How Danielle diversified a low-basis tech stock with no upfront tax bill

A former Silicon Valley executive with millions in one stock and almost no cost basis. She used the stock as collateral for a 130/30 portfolio and sold it gradually as losses built up.

How her portfolio shifts from one stock to an S&P 500-like portfolio

Start

Early on

Midway

Later

Several years in

Former employer's stockS&P 500-like portfolio

Talk to an adviser

Hypothetical illustration adapted from Nuveen's client material, "Managing wealth with tax-advantaged long/short." Danielle is not an actual client. Taxes are deferred, not eliminated; results vary and are not guaranteed.

Why InverseWealth

Sophisticated strategy. Expert advice.

A plan for getting in and getting out

We set the leverage for your gains and timeline, and plan the step-down before you start, so unwinding doesn't trigger the gains you deferred.

Fund it with the stock you already own

Transfer your shares and use them as collateral. Sell them gradually as losses build, instead of all at once.

Household wash-sale coordination

We coordinate trades across your accounts, including IRAs, 401(k)s and your spouse's accounts, so a purchase in one doesn't cancel a loss in another.

A dedicated, licensed adviser

A fee-only fiduciary who ties the strategy to your tax planning, equity compensation and the rest of your wealth.

Custom analysis

See what Long/Short could do for your gains.

How much in losses you could harvest, and how fast
Which leverage level fits your gains and timeline
Whether direct indexing alone would be enough

FAQ

Frequently asked questions.

What is tax-aware Long/Short, in one sentence?

It is direct indexing with extra long and short positions added using margin, which creates far more chances to harvest losses while your portfolio stays close to the market.

Is this a hedge fund?

No. Long/Short equity hedge funds buy and short stocks to try to beat the market. Tax-aware Long/Short aims to track an index or benchmark and uses the extra positions to harvest losses. The account is a separately managed account in your name.

Do I have to sell my stock first?

No. You can transfer appreciated shares and use them as collateral for the strategy. As losses build up, you sell the stock gradually and use the losses to offset the gains.

How is it different from direct indexing?

Direct indexing only harvests losses when stocks you own fall below what you paid, so it slows down as the portfolio rises, leveling off near 28% of the amount invested. The short positions keep producing losses when stocks rise, so Long/Short can harvest losses equal to the full amount invested within a few years, depending on leverage.

What are the risks?

Leverage and short selling add risk, cost and complexity. Returns can drift further from the index, especially at higher leverage, and short positions can lose money if stocks rise sharply. The account uses margin, which carries financing costs and the risk of collateral calls. Harvested losses defer taxes rather than eliminate them.

How do I get out?

Not all at once. Closing every position together could realize the gains the strategy deferred. Most plans step leverage down gradually over several years and end with a small overlay or a move back to direct indexing. We plan the exit before you start.

Next step

See what this could look like for you.

Schedule a complimentary, no-obligation consultation.

Talk to an adviser

Not ready to talk? Get a custom analysis by email.

Sources

Liberman, Krasner, Sosner and Freitas, "Beyond Direct Indexing: Dynamic Direct Long-Short Investing," The Journal of Beta Investment Strategies, Fall 2023. Averages across 27 simulated ten-year periods, 1986 to 2021, Russell 1000, one-time investment, gross of management fees and financing costs. Losses equal to the amount invested in about 7 years at 150/50, under 3 years at 200/100 and under 2 years at 250/150; long-only direct indexing leveled off near 28%. Hypothetical; not the results of any InverseWealth account.

Tax-aware Long/Short disclosures

Tax-aware Long/Short uses leverage, margin and short selling, which add risk, cost and complexity. Short positions can lose money if prices rise, and losses on short positions are theoretically unlimited. Margin accounts carry financing costs and the risk of collateral calls and forced sales. Returns may deviate significantly from the index, especially at higher leverage. The strategy is not suitable for all investors.

Losses save tax only against realized capital gains; excess losses can offset up to $3,000 a year of ordinary income and the rest carries forward. Harvesting lowers cost basis, so the benefit is largely a deferral of tax rather than a permanent reduction. Results vary with markets and your tax situation and are not guaranteed.

InverseWealth LLC is a California-registered investment adviser. All investing involves risk, including loss of principal. Past performance is not an indication of future results. InverseWealth does not provide legal or tax advice; consult a qualified tax professional. Not a solicitation of advisory services outside California or where otherwise legally permitted.