$25m CA portfolio

Currently sitting in A LOT of cash that’s earning interest taxed at both the Federal and State levels. You need > 50% of the money market fund to be invested in T-Bills to get it exempt from the potential 13.3% CA tax. You might be able to be even more tax efficient in a no distribution ETF.

I get that it’s scary to put a ton of money to work in the market all at once, that’s why I recommend diversified portfolios across stocks, bonds, real estate, hedge funds, infrastructure, and private equity. That way, you limit how much $ goes toward the stock market at such a volatile time.

Some of the equity exposure is going to be within a tax-aware long/short SMA to enhance return potential and tax efficiency. They have an appreciated real estate property with a big gain that we’ll be able to offset with capital losses from the SMA.

We’re also going to leave some of their low-basis, low-cost index funds unencumbered should we need to do any box spread loans for additional real estate purchases. We can borrow at sub 4% with tax deductibility which is a huge advantage.

The hedge fund exposure is going to be split across multiple funds that provide unique, uncorrelated, and tax-efficient return streams. We expect ordinary deductions that can offset their earned income and some Roth conversions that we’ll start doing.

Real estate is where we’re going to get our tax-efficient income from. Depreciation + 1031 exchanges will allow us to capture an ever-increasing cash flow without the tax drag. We’ll also raise rents over time so the cash flow increases with inflation. Our infrastructure investments can provide a similar advantage with contractual cash flows that increase with inflation.

Private equity in the Roth IRA is where compounding can work it’s magic. Being diversified across sector, geography, PE-style, etc. puts us in the best position to add differentiated return sources to the portfolio. The higher turnover in PE investing is a non issue inside Roth IRAs.

As cool as all this is, it’s nothing compared to the value they’ll get from someone like Parker Mayo, CFP®, CPWA® helping them craft a family mission statement that serves as our north star for why we’re doing this.

Kids, grandkids, legacy, education, health, Faith, charity, etc. The things that really matter.