---
title: Resolve to Increase Savings Through Tax-Efficient Investing
description: Optimize your investments year-round by exploring tax-efficient strategies like longer holding periods, tax-loss harvesting, and actively managed funds to minimize taxable distributions.
image: https://blog.longshortadvisors.com/hubfs/Resolve%20to%20Increase%20Savings%20Through%20Tax-Efficient%20Investing.jpg
---
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[March 07, 2025](https://blog.longshortadvisors.com/news-insights/resolve-to-increase-savings-through-tax-efficient-investing)
When people think about tax efficiency, they often focus on traditional strategies like maximizing tax-deferred accounts or harvesting losses at year-end. But tax efficiency isn’t just about what you do in April or December—it can be built into your investment approach year-round, often in ways you might not expect.
For example, the types of funds you invest in, how long you hold your stocks, and even the strategy behind your portfolio can all impact how much of your gains you actually keep. While many people assume passive investing is the most tax-efficient route, that’s not always the case. In fact, certain actively managed strategies—like long/short equity—can provide surprising tax advantages when structured correctly.
###### **Investing in the Presence of Taxes**
Longer holding periods for securities tend to reduce tax liabilities since there’s a preferential long-term capital gains tax rate on positions held for more than one year. Preferential tax rates also apply for “qualified dividend” distributions (the Trump victory and Republican sweep of Congress raise the odds that preferential tax rates will be extended for long-term capital gains and qualified dividends). When you lose money on a position (i.e., the market price is below your cost basis), you can engage in “tax-loss harvesting” by selling the loss-maker to offset gains realized in other investments in your portfolio. One New Year’s resolution should be to identify opportunities to engage in tax-loss harvesting *throughout the year* rather than just in November-December when everyone else is doing it, forcing down and distorting market prices.
A mutual fund structure is not always the most tax-efficient investment strategy. Recall that when fund holdings generate capital gains and income during the year, the fund is required to distribute the earnings to its shareholders prior to the end of the year. With the exceptions of tax-free municipal bond funds and a handful of tax-managed funds, most fund managers receive investment from both taxable and tax-deferred accounts such as IRAs and 401Ks and pay little attention to tax efficiency in managing the money.
There is, in fact, a wide dispersion of tax efficiency among stock funds. Conventional wisdom holds that passive index funds are tax efficient, but this isn’t always the case: Active management strategies such as tax-loss harvesting and minimizing turnover are unavailable for passively managed funds, which do have unavoidable portfolio turnover when indexes are reconstituted quarterly or annually.
A long/short equity manager can, however, potentially *enhance* tax efficiency through actively managed long/short strategies such as controlling portfolio turnover and strategic use of options and tax-loss harvesting. LS Opportunity Fund (LSOFX), for example, is one long/short equity fund that tends to be managed in a tax efficient manner (for instance, the relatively low portfolio turnover of 47% figure implies an average security holding period of more than two years). For example, both 2023 and 2024 were bumper years for equity markets, but the fund managed to grow its net asset value while making minimal taxable distributions. In 2023, LS Opportunity returned 11% but made *no* distributions; in 2024, the fund gained 8.3% and distributed income equivalent to less than 1% a share, part of it as a long-term capital gain.*
*As of 12/31/2024, the Fund’s 1-YR return was 8.29%. The Fund returned 5.22%, 6.44%, 6.22% for the 3, 5, 10-year periods, respectively and 6.62% since inception.
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**You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund's prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus by calling (877) 336-6763. **
Investment in shares of a long/short equity fund have the potential for significant risk and volatility. A short equity strategy can diminish returns in a rising market as well as having the potential for unlimited losses. These types of funds typically have a high portfolio turnover that could increase transaction costs and cause short-term capital gains to be realized.
The Fund may lose money due to fluctuations within the stock market which may be unrelated to individual issuers and could not have been predicted. The price of the securities which the Fund holds may change unpredictably and due to local, regional, international, or global events. In the case of a general market downturn, multiple asset classes, or the entire market, may be negatively affected for an extended and unknown amount of time.
Past performance is no guarantee of future results. Diversification cannot ensure a profit or protect against loss in a declining market. It is a strategy used to help mitigate risk
Distributed by Ultimus Fund Distributors, LLC. Member [FINRA](https://www.finra.org/#/)
Long Short Advisors is registered as an investment adviser with the Securities and Exchange Commission. There is no affiliation between Ultimus Fund Distributors, LLC, Long Short Advisors, and the other firms referenced on this website.