I want to briefly write about a situation many investors eventually face — a liquidity event.

This could be the sale of a business, the exercise of stock options, an inheritance, or the sale of a highly appreciated investment. Suddenly you have a significant amount of cash that needs to be invested thoughtfully.

One approach that can be very useful in these situations is a separately managed account, or SMA.

With an SMA, instead of owning mutual funds and ETFs alongside thousands of other investors, the portfolio is built using individual securities that are owned directly in your account. That gives you a lot more flexibility, specifically around taxes.

For example, we can control capital gains and avoid the embedded capital gains that come with mutual funds and ETFs. We can manage tax exposure more carefully and harvest losses if appropriate. We can gradually invest large sums of money in a disciplined way rather than all at once and we can construct your portfolio in a way that supports long-term tax planning.

SMAs were once largely reserved for ultra-high-net-worth investors because they required large minimum investments and were expensive to administer. Advances in trading technology, portfolio management platforms, and fractional share capabilities have significantly lowered those barriers. As a result, SMAs have become more accessible, giving investors dealing with large inflows of capital greater control, as well as the customization, transparency, and tax management benefits that many traditional pooled investments cannot provide.

If you’re anticipating a liquidity event or recently experienced one, it’s worth discussing how an SMA can benefit you. If you’d like to learn more, reach out to me here.