Jim Tucker is a CERTIFIED FINANCIAL PLANNER™ Professional and Chartered Retirement Plans Specialist® designee that manages over $350 million in assets with the investment and financial planning firm of Tucker Bria Wealth Strategies, LLC.
Jim is deeply committed to assisting families as they navigate their life journeys. He believes that family members should discuss money. These discussions, he believes, are critical for de-mystifying money and its role in family history. Each generation in a family should learn to be stewards of family wealth for the next generation, similar to planting an oak tree that can live for over 100 years. Jim has learned that a family’s wealth can be defined in ways other than money, such as valuing each family member as an individual and celebrating their knowledge and growth. This concept of family is often appealing to successful women who want to pass on their values to future generations.
Jim had a successful business career before entering the wealth management industry in 2003. He has worked as a Wall Street investment banker and as an investment manager for a national insurance company’s regional mall real estate portfolio. He was a member of the management team that took Natural Wonders, a mall-based nature and science gift retailer, from a venture capital-backed start-up to a publicly-traded company. He was also an early employee of AvidXchange, a Charlotte-based technology company.
Today, Jim has carved out a niche for himself by assisting successful women, whether they are just starting out in their careers or are nearing retirement.
Episode Highlights Here:
Jim Tucker:
There has been a great deal of gains across whether it’s just those five stocks everyone talks about in the technology space. But more generally, over the course of those 10 years coming out of the financial meltdown of 2008 and 2009, we’ve had a great run-up in S&P 500.
Pierce York:
What are some phenomenal tax deferral strategies that you’re using with your clients today?
Jim Tucker:
Well, the best thing I’m going to provide your listeners and viewers with two actionable strategies that they can take with them, and either use for their own personal experience or pass them along to family and friends. Of the two actionable items, the first is Direct Indexing. The second is using your investment account as collateral for a loan. So direct indexing is where I’m ready to start any brief questions, or should I just dive right into it?
Pierce York:
What is it?
Jim Tucker:
Direct indexing is a way to invest in the S&P 500 and get some additional tax losses. So very simply, anytime I introduce a concept to clients, there has to be a value add, or a problem that needs to be solved. So in the case of direct indexing, the problem that needs to be solved is over the last 10 years, now we’ll use the S&P 500 as the example, there has been a great deal of gains across whether it’s just those five stocks everyone talks about on the technology space. But more generally, over the course of those 10 years coming out of the financial meltdown of 2008 and 2009, we’ve had a great run-up in S&P 500. So what you have at this point in time, hopefully, is a portfolio that you have some capital gains that you have to deal with. So you can sell them in a bunch of different strategies to reduce capital gains. But how about if you have the ability to create tax losses, even as you’re growing your S&P 500 portfolio and that’s what direct indexing allows you to do.
Pierce York:
So is it different than a tax loss harvesting strategy?
Jim Tucker:
Well, basically, that’s what it is. So let me sort of step back and give a brief history of where we’ve come as investors, we’ve started with mutual funds. Mutual funds are basically you pool your dollars with those of other investors. Then you have a manager who invests those dollars, and you get hopefully, growth and returns from that. Now, what mutual funds are required to have happened is what I call the December surprise. So you’ve done great tax planning over the course of the first 11 months. Then the mutual fund is required by law to distribute its capital gains and dividends by the end of the year. So you’ve done this great tax planning for 11 months and then you have this December surprise, where all of a sudden, hopefully, you only have a one to 3% Capital Gains event. But there have been times where those mutual funds have been in double digits in 10, 13, and I’ve even seen 15% of NAV coming out as a December surprise. So mutual funds gave rise to Jack Bogle and the Vanguard strategy of, okay, let’s do indexing on the active-passive mutual funds, you have active managers index fund, basically, S&P 500, you buy five 500 stocks through an index and then you just sit back and watch what happens. And hopefully, everything goes up. And then when a company gets thrown out or enters the S&P 500, that’s when you have a change. With that, you have great tax efficiency, because you really don’t have those December surprises. But you have the same issue that I just mentioned over the last 10 years, for example, that you have the S&P 500 growing very large, so you have this capital gains event. The outgrowth from the index funds has been the exchange-traded funds, exchange-traded funds have really just taken the indexing concept and grown beyond just the traditional indexes that we talked about. So you have things like a country fund or a sector fund, like a health care or technology fund, that you have maybe not an index that you can rely on, but you have a sector. That’s all great. Now we have a situation where let’s talk about investing in the S&P 500. So what I love about direct indexing is it’s very comforting to talk to clients and say, you’re going to be invested in S&P 500 stocks, that’s the first thing. It’s not this complex strategy. So then what you have is a manager who doesn’t buy, the entire index doesn’t buy the 500 stocks, ultimately look for within the sector to keep the sector balanced. So to have the right amount of energy exposure, the right amount of technology exposure, healthcare exposure, consumer discretionary, and what have you. And so what you then have is 125, to 200 stocks that you own. And that’s the first piece and differentiation between going through a mutual fund or going through an index or ETF, where you as the investor are pooling your money, with other investors with direct indexing with typically a requirement to have at least $100,000 into a separately managed account. So basically, you own the individual stocks in the portfolio. So that’s the first piece to understand you’re buying the S&P 500, you now own the 125 to 200 stocks that make up the subset of the S&P 500. What I love to say is that you have turned now, an eight-page monthly report that you get from your brokerage firm into an 80-page report, because each of the individual three shares, two and a half shares of Apple of Microsoft are now listed, as opposed to one line of the Acme Mutual Fund. That’s the first piece and that’s fairly straightforward. You own S&P, you own 125 to 200, S&P 500 quality stocks.
Pierce York:
So basically, you’re saying, instead of buying into a mutual fund, you just cherry-pick the best stocks out of the S&P 500 and you just buy those?
Jim Tucker:
Well, it’s a manager who’s doing this. So we’re not doing it on our own, we could but it’s much easier to have a manager do that. So yes, so you have a manager that hopefully is cherry-picking the best stocks, within their sector be a consumer discretionary technology energy.
Pierce York:
So you basically have to break it up off of the different categories or energy sectors or healthcare sector or whatever, you get to cherry-pick the best ones, and you’re creating your own portfolio of stocks that you like the best, and you have a little bit more control over them, or the manager does.
Jim Tucker:
So the manager has control. Over the 10 years, let’s hope that all 125 to 200 stocks have gone up. But in say 2015 or 2017, or 2019, as the all boats are rising, there’s probably one or two or four or five companies that have a restructuring going on have some negative press. So the end of the month comes along and their stock is actually down. So you’ve actually had a paper loss and unrealized loss on that stock. What the manager then does is the manager sells that stock that’s gone down with the full intention of buying it back after 31 days and meeting the wash sale rules. So you basically that is direct indexing, you basically have a manager who’s buying it the S&P 500, which we’re using for today, it also can work and is done through small-cap and mid-cap stocks as well. But you have a situation where you create losses of the managers creating losses over the course of the year, even if the S&P and your fund as an example go up. 5%, let’s say you might have created an equal percentage or so of tax losses, which then are available to us as you see fit. I can go into a couple of ways that my clients then use the losses that are created.
Pierce York:
Yeah, so let’s dive into that. So out of this group of stocks that you the manager have cherry-picked a couple of them don’t do so hot, we sell those, and then with the full intention of buying them back 30 days later, but we’re realizing the loss. And so because of that, we’re able to actually write it off against the rest of the gains that we’ve had in kind of bringing down the game on paper.
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About Jim Tucker
Jim Tucker is a CERTIFIED FINANCIAL PLANNER™ Professional and Chartered Retirement Plans Specialist® designee that manages over $350 million in assets with the investment and financial planning firm of Tucker Bria Wealth Strategies, LLC.
Jim is deeply committed to assisting families as they navigate their life journeys. He believes that family members should discuss money. These discussions, he believes, are critical for de-mystifying money and its role in family history. Each generation in a family should learn to be stewards of family wealth for the next generation, similar to planting an oak tree that can live for over 100 years. Jim has learned that a family’s wealth can be defined in ways other than money, such as valuing each family member as an individual and celebrating their knowledge and growth. This concept of family is often appealing to successful women who want to pass on their values to future generations.
Jim had a successful business career before entering the wealth management industry in 2003. He has worked as a Wall Street investment banker and as an investment manager for a national insurance company’s regional mall real estate portfolio. He was a member of the management team that took Natural Wonders, a mall-based nature and science gift retailer, from a venture capital-backed start-up to a publicly-traded company. He was also an early employee of AvidXchange, a Charlotte-based technology company.
Today, Jim has carved out a niche for himself by assisting successful women, whether they are just starting out in their careers or are nearing retirement.
