Here's when investors typically consider this strategy, and what to weigh in each case.
Diversifying concentrated stock, tax-efficiently
You hold a large, appreciated position and want to reduce concentration risk without a large, immediate tax bill. The right approach depends on your cost basis. For very low basis shares, an exchange fund offers immediate diversification with a simpler structure (though it requires a seven-year holding period). Cache Long/Short may be better suited for medium-basis shares or as a complement to an exchange fund, letting you gradually sell over time while seeking to harvest losses to offset those gains.
Many investors use both: an exchange fund for the portion they can commit long-term, and Long/Short for the rest.
2. Offsetting gains you've already realized
You've sold stock or have gains from fund distributions, rebalancing, or other activity, and you want to offset that liability within the current tax year. If you act within the same year, the strategy can generate losses that may offset those gains. Excess losses can be carried forward. The amount generated depends on market conditions, leverage level, and portfolio activity. Results vary, and specific outcomes cannot be guaranteed.
3. Preparing for an upcoming taxable event
You have a known event on the horizon, such as an IPO lockup expiring, a secondary sale, a business exit, or a real estate sale, and want to build up losses in advance. The earlier you start, the more losses you may accumulate before the event. If it doesn't occur or is delayed, unused losses carry forward.
4. Managing ongoing tax drag over time
You don't have a single large event, but you have recurring gains from RSU vesting, fund distributions, or other investment activity. Traditional tax-loss harvesting can run dry as portfolios fill with appreciated positions. Cache Long/Short seeks to continue generating harvestable losses across different market environments, including rising markets.
This approach tends to work best with a multi-year horizon (15+ years), particularly for estate planning or wealth transfer, where assets may receive a step-up in basis under current tax laws.
Results depend on market conditions and individual circumstances. Consult a tax professional to understand how this fits your situation. Cache does not provide tax or legal advice.