Get a Cut of the $22 Billion Tax LoopholeBy Joel Litman, chief investment officer, Altimetry
 Owning a huge winner sounds like the best possible outcome for an investor...
Consider market darling Nvidia (NVDA) – the biggest semiconductor company in the world by market capitalization. If you had put $100,000 into the stock 10 years ago and held it, you'd be sitting on nearly $14 million today. That kind of gain is a game changer. When a single position creates that much wealth, diversification is the next logical step. But selling can create a problem. Most of the roughly $14 million in our Nvidia scenario represents years of compounding. Selling a stock to invest in something else means those capital gains can be taxed... all at once. Today, we'll explain how a century-old provision in the U.S. tax code is helping wealthy investors compound more of their money – while avoiding an immediate tax bill. The underlying lesson could help retail investors, too. If you've got an extra $150,000, you can create your own ETF...Rich families are moving their portfolios into customized exchange-traded funds ("ETFs"). Section 351 of the U.S. tax code allows qualifying investors to contribute their existing portfolios to new ETFs in exchange for shares of that fund. In July, researchers identified 105 such ETFs. They had $22.1 billion in assets at launch and helped defer at least $6.5 billion of capital gains. More than half of those funds launched in 2025. The initial contribution can be made without immediately realizing any capital gains. From there, the ETF structure becomes even more useful.
| Recommended Links: |
|
 This System Flagged Oracle, Broadcom, and Advanced Micro Devices. Now, It's Aimed at U.S. Defense Pentagon consultant Joel Litman's system identified Oracle, Broadcom, and Advanced Micro Devices before they soared as much as 1,070%, 14,949%, and 21,657%, respectively. Now, he's pointing it at the little-known defense suppliers poised to benefit from President Donald Trump's $1.5 trillion military buildup. Reserve a free seat at Joel's emergency briefing on September 24, and you'll get early access to the new, improved, and AI-powered version of his system – plus the chance to ask Joel your biggest questions about the munitions shortage. See Joel's AI stock grader in action. |
|
 Gold Under Mount Rushmore? A tiny $6 miner just hit on one of the biggest gold finds in American history... at Mount Rushmore. Thanks to a breakthrough new technology, this little firm just unearthed 114 tons of gold in the hills there. Now, it's set to rake in hundreds of millions of dollars a year. Get the stock name for free here. |
|
|
ETFs routinely use "in-kind" transactions, meaning they exchange securities for ETF shares instead of selling holdings for cash. This gives fund managers room to rebalance portfolios while avoiding many taxable sales. You see, a direct sale immediately turns into taxable income. A qualifying 351 conversion keeps those assets safe while the portfolio grows. The catch is that the original cost of the assets generally applies to ETF shares. Take an investor who buys a stock for $5 and watches it appreciate to $100. When he moves that investment into an ETF and sells those ETF shares, he faces capital-gains taxes on the stock he bought for $5. Until that happens, though, money that may have gone toward taxes can remain in the portfolio. That extra time creates more options. For example, an investor may realize gains later in retirement, when income and tax rates may be lower. That flexibility explains why 351 conversions have become so popular. That said, to participate in one, you need to invest at least $150,000. The same compounding principle works with much smaller portfolios, too...Standard ETFs already provide diversification for long-term retail investors. That's part of what we recommend in our Timetable Investor framework. Investors should put their money in a tax-efficient ETF from day one. An S&P 500 fund, for example, immediately spreads that capital across roughly 500 of America's largest companies. Over time, retail investors can weave in individual stocks to adjust their allocation as opportunities emerge. They can decide how to apportion their money, which is already in the market, strategically. They don't have to constantly move between equities and idle cash. Sitting on cash while waiting for the next big investment can have a huge opportunity cost. So can turning your portfolio over and realizing gains earlier than necessary. Wealthy investors who use 351 conversions are solving an extreme version of the same problem. For everyone else, the most valuable asset is time...Wall Street is building customized funds and navigating an old section of the tax code to preserve one thing... More time to compound gains. Investors benefit when they control the timing of taxable sales and keep long-term capital working. That's why our Timetable Investor approach begins with asset allocation. ETFs belong in diversified stock portfolios as long-term capital investments. Individual stocks can then be added to improve a portfolio's allocation when stronger opportunities appear. Click here to learn more about these investment ideas in Timetable Investor... and get a 30-day, risk-free trial offer. Regards, Joel Litman
September 18, 2026
|
No comments:
Post a Comment