Harvesting Loss
Finally, bond losses can spell tax savings. In rising interest rate environments, investors seeking tax efficiencies may book a capital loss to offset capital gains in other parts of their portfolios by selling their bonds. The investors may then reinvest those proceeds into bonds with higher yields, creating a win-win tax and investment situation. Consider the hypothetical scenario in the second chart, which demonstrates a tax-loss swap strategy that ultimately yields a net benefit of $1,071.44 to an investor with $100,000 in municipal bonds.
This is a hypothetical scenario. It does not represent the performance of Silver Bridge or any actual investment portfolio.
Ultimately, it is best to take a long-term view when you consider fixed income, just as you do with equity or alternative investments, and maintain your commitment to the asset class at appropriate levels, even when interest rates are rising.
Michelle Knight is the director of fixed income at Silver Bridge (www.silverbridgeadvisors.com), an independent wealth management boutique. All investment advisory services are provided by Silver Bridge Capital Management LLC, a registered investment advisor affiliated with Silver Bridge Advisors LLC. None of the information contained in this piece is intended as investment advice or securities recommendations to any person.