If you’ve ever watched the Tour de France, you’ve likely noticed the cyclists’ aerodynamic helmets, tight clothing, and tucked body positions as they pedal furiously through the French countryside … each of these things constituting one small part of the larger effort to improve performance by reducing the resistance caused by air, also known as drag.
Investors face a similar performance drag in the form of taxes, which can create a gap between what portfolios earn in the market and what investors actually get to keep after paying the taxes on those returns. This tax drag can materially change the amount of wealth investors accumulate over time.
Research shows historical impact of tax drag
In recent research, Andrew Ang, an adjunct professor at Columbia University, examined how federal taxes have shaped the returns U.S. equity investors held onto over the past century.1
For the period 1996–2025, Ang estimates that a taxable investor experienced annualized federal tax drag of 165 basis points (bps) per year.
That’s a lot, but 165 bps was relatively favorable by historical standards. Ang also looked across eight overlapping 30-year time periods from 1926 to 2025 and estimated the average annualized federal tax drag was 347 bps/year, with the worst period, 1936–1965, clocking in at 538 bps/year.
It’s important to note that Ang’s research focuses on a specific taxable investor profile and considers the impact of federal taxes only. Factors such as state taxes, portfolio holdings, and charitable giving could change the results for any individual investor.
Even so, the larger conclusion holds — taxes can have a material negative impact on the wealth taxable investors accumulate. For advisors this means tax management should be an essential part of wealth management for taxable investor clients.
Tax management is more than tax loss harvesting
For some advisors, the words “tax management” are roughly synonymous with “tax loss harvesting.” Tax-loss harvesting is not the whole discipline, however. There’s a lot more involved in tax management than simply booking losses to offset gains when filing taxes.
Tax management is a broad, ongoing process that includes:
Tax-efficient transitions: moving from legacy holdings or an existing strategy into a new portfolio without haphazardly realizing gains.
Ongoing tax loss harvesting: harvesting losses when markets and tax lots create opportunities.
Tax-aware rebalancing: keeping portfolios aligned with targets while considering the tax cost of trades.
Reducing concentrated positions: methodically right-sizing overweight positions to reduce portfolio risk without realizing massive gains all at once.
Gain deferral: recognizing that timing matters when it comes to realizing gains and that sometimes choosing not to realize a gain is the right strategic choice.
Tax-smart withdrawals: funding investor needs in a way that evaluates gains, losses, tax lots, and tax budgets holistically.
Step-up and estate considerations: recognizing that for some clients, especially older clients, deferral may be more valuable than realizing gains because of the potential step-up in basis.
Effective tax management is not a seasonal practice
Markets move daily. Portfolio allocations drift over time. Clients need cash unexpectedly, and tax lots available to fund those needs may trigger different tax consequences. Harvesting opportunities are often fleeting, appearing and disappearing quickly when markets are choppy.
This is why always-on, comprehensive portfolio monitoring is such an important component of tax management. Tax management requires frequent, account-level decisions:
- Which lots should be sold?
- Should the portfolio rebalance now or wait?
- Is a particular loss worth harvesting?
- Would harvesting trigger wash-sale rules?
- How much gain can the client tolerate this year?
- How should a withdrawal be funded?
- How should legacy positions be transitioned?
These are recurring, account-specific, and often time-sensitive decisions. Personalizing this decision making for each client every day across a growing book of business is very difficult, if not operationally impossible, without some rules-based automation in place to identify and act on opportunities as they arise.
How to operationalize all elements of tax management
Tax Management Services (TMS), powered by AssetMark, is designed to help advisors bring personalized and comprehensive tax management into the ongoing delivery of portfolio advice. TMS helps advisors unlock tax efficiencies for clients with functionality that enables tax-efficient transitions, ongoing and automated tax-loss harvesting, tax-efficient rebalances, and tax-smart withdrawals.
TMS makes tax management systematic, turning tax management from an occasional manual exercise into a personalized, scalable capability.
Conclusion
For clients, taxes are personal. They may not always notice the fine points of portfolio construction, but they definitely notice the number listed next to “Pay This Amount” on their tax filing.
A comprehensive tax management strategy doesn’t mean taxes can be eliminated, but it does mean the drag on returns caused by taxes can be potentially minimized, allowing investors to keep more of their gains and accumulate more wealth over time. No single tactic, including tax-loss harvesting, can carry the entire burden of tax management. The broader opportunity for advisors is to reduce tax drag continuously for all clients consistently and at scale. TMS helps make that possible.
Our Tax Management Services page has more information.
Or speak to one of our consultants for more detail about how TMS can help your firm deliver personalized tax strategies at scale.
Footnotes
- Andrew Ang, Ph.D., “Uncle Sam’s Cut: A Century of the Federal Tax Drag on US Equity Returns,” working paper, May 29, 2026. The paper estimates the federal tax drag on U.S. equity investors by simulating a taxable investor holding the market portfolio from 1926 to 2025 under the tax code in force each year.
Important Information
This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed and is subject to change.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.
The Tax Management Services (TMS) is designed to improve the after-tax return for the client’s account, consistent with the risk/return profile of the investment models based on the selected tax sensitivity. TMS may cause the account to deviate from the investment models and can affect the risk profile and performance of the account. A higher tax sensitivity account setting can have a higher deviation from the investment models than a lower tax sensitivity. Adding TMS customizations to the account can impact the account’s tax and investment results. Tax analysis proposal reports may vary over time. Actual tax management results are subject to change based on investment holdings, market conditions, timing, and other factors. Securities may be partially traded or not traded due to market movements and illiquidity, rebalancing, client activity, and other factors. The account may be invested in non-model securities intended to approximate the target investment models. AssetMark, at its discretion, will determine when to take tax management actions based on any client restrictions or other instructions, such as client withdrawals. The timing of trading in TMS accounts may differ from non-TMS accounts. If an investment strategy is closed, the closed strategy may no longer be TMS-eligible; and AssetMark may provide an alternative TMS-eligible strategy.
The tax savings report is not a replacement for other tax reports for tax filing purposes. Investors seeking more information should contact their financial advisor.
Adhesion Wealth Advisor Solutions (“Adhesion”) is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Adhesion and third-party providers are separate and unaffiliated companies. Each party is responsible for their own content and services.
Adhesion is an affiliate of AssetMark, Inc., an investment adviser registered with the SEC.
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9004442.1 | 7/2026 | EXP 7/31/2028