Tax-smart investment management¹

The average Portfolio Advisory Services client has saved $3,900 in taxes per year,² thanks to just one of our many tax-smart investing techniques (based on average account balance of $715,367)

< See all tax-smart techniques

The rate at which an investment is taxed when you sell it depends in part on the amount of time you've owned it. When selling investments in your account, we'll generally first look to sell those that you've held for longer than one year, allowing us to take advantage of lower long-term capital gains tax rates.

How deferring the realization of short-term gains in favor of long-term gains can lower your tax burden

Bar chart shows the difference between the taxes owed on short- and long-term gains. In this hypothetical example, two gains of $10,000 are shown. The short-term gain has a tax rate of 40.8%, leaving the investor with an after-tax gain of $5,920. The long-term gain has a tax rate of 23.8%, leaving the investor with an after-tax gain of $7,620.

How it works

In this hypothetical example, an investor holds a security with a pre-tax gain of $10,000. If the security were held for less than one year, it would be taxed at the investor's federal tax rate as ordinary income. Assuming the investor is in the top marginal tax bracket, that would result in $4,080 in taxes paid, for an after-tax profit of $5,920.

However, if that same security were held for more than one year, that $10,000 realized gain would be taxed at the investor's long-term capital gains rate of 23.8%, resulting in an after-tax profit of $7,620. As you can see, length of time you've held an investment when you sell it can make a big difference.

Bear in mind that this hypothetical illustration assumes the gains were taxed at the current maximum federal long-term capital gains rate of 23.8%. These calculations also include a 3.8% Medicare surtax.

Tax-smart Withdrawals Designed to Help You Keep More of What You Earn (PDF)

1. Tax-smart (i.e., tax-sensitive) investing techniques (including tax-loss harvesting) are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager primarily with respect to determining when assets in a client's account should be bought or sold. As the discretionary portfolio manager, Strategic Advisers LLC ("Strategic Advisers") may elect to sell assets in an account at any time. A client may have a gain or loss when assets are sold. There are no guarantees as to the effectiveness of the tax-smart investing techniques applied in serving to reduce or minimize a client's overall tax liabilities, or as to the tax results that may be generated by a given transaction. Strategic Advisers does not currently invest in tax-deferred products, such as variable insurance products, or in tax-managed funds, but may do so in the future if it deems such to be appropriate for a client. Strategic Advisers does not actively manage for alternative minimum taxes; state or local taxes; foreign taxes on non-U.S. investments; federal tax rules applicable to entities; or estate, gift, or generation-skipping transfer taxes. Strategic Advisers relies on information provided by clients in an effort to provide tax-sensitive investment management and does not offer tax advice. Except where Fidelity Personal Trust Company (FPTC) is serving as trustee, clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities.

2. Tax-loss harvesting is one of several tax-smart investing techniques we apply in managed portfolios. Tax savings will vary from client to client. In any given year it may offer significant benefits during volatile markets. Past performance is no guarantee of future results. Factors that could impact the value of our tax-smart investing techniques include market conditions, the tax characteristics of securities used to fund an account, client-imposed investment restrictions, client tax rate, asset allocation, investment approach, investment universe, the prevalence of SMA sleeves and any tax law changes. This analysis is based on the performance of all accounts in good order within investment strategies (offered through Fidelity^® Wealth Services) within taxable account registrations from 1/1/2013 for the Total Return Blended strategy, and from1/28/2019 for Total Return Fidelity-Focused and Index-Focused strategies and the Defensive approach (when tax-smart investment management capabilities were introduced) through 12/31/2022. Accounts managed with household tax-smart strategies are not included in this analysis. The analysis includes calculating the average of each year’s average account’s capital gains tax savings over the past ten years. We estimate potential capital gains tax savings by multiplying each harvested tax loss by the applicable short-or long-term capital gains tax rate for each client account at the end of each year. The average account balance is $715,367, which is the average of each year’s average account balance over the past ten years.

Our after-tax performance calculation methodology uses the full value of harvested tax losses without regard to any future taxesthat would be owed on a subsequent sale of any new investment purchased following the harvesting of a tax loss. That assumption may not be appropriate in all client situations butis appropriate where(1) the new investment is donated (and not sold) by the client as part of a charitable gift, (2) the client passes away and leaves the investment to heirs, (3)the client’s long-term capital gains rate is0% when they start withdrawing assets and realizing gains, (4) harvested losses exceed the amount of gains for the life of the account, or (5) where the proceeds from the sale of the original investment sold to harvest the loss are not reinvested. Our analysis assumes that any losses realized are able tobe offset against gains realized inside or outside of the client account during the year realized; however, all capital losses harvested in a single tax year may not result in a tax benefit for that year. Remaining unused capital losses may be carried forward to offset up to $3,000 of ordinary income per year. It is important to understand that the value of tax-loss harvesting for any particular client can only be determined by fully examining a client’s investment and tax decisions for the life the account and the client, which our methodology does not attempt to do. Clients and potential clients should speak with their tax advisors for more information about how our tax-loss harvesting approach could provide value under their specific circumstances.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Generally, among asset classes stocks are more volatile than bonds or short-term instruments and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Although the bond market is also volatile, lower-quality debt securities including leveraged loans generally offer higher yields compared to investment grade securities, but also involve greater risk of default or price changes. Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market or economic developments, all of which are magnified in emerging markets.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Other than with respect to assets managed on a discretionary basis through an advisory agreement with Fidelity Personal and Workplace Advisors LLC, you are responsible for determining whether, and how, to implement any financial planning recommendations presented, including asset allocation suggestions, and for paying applicable fees. Financial planning does not constitute an offer to sell, a solicitation of any offer to buy, or a recommendation of any security by Fidelity Investments or any third party.

Fidelity^® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Portfolio Advisory Services accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

866043.7.0

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