Generate tax losses to transition your appreciated portfolio

Cache Long/Short is a tax-aware investment strategy designed to help you diversify out of concentrated stock positions gradually while seeking to manage the tax consequences.

The strategy builds a portfolio of long and short positions around your existing holdings, configured toward your long-term goals. Long positions that decline and short positions that rise both create potential losses the portfolio manager can harvest deliberately. Those realized losses may then be used to offset taxable gains elsewhere, subject to applicable tax rules. Throughout, your net market exposure is targeted at 100%.

We built this in partnership with a leading tax-aware SMA provider, an SEC-registered advisor with deep experience in institutional tax-aware investing, who manages portfolio construction, trading, and tax-aware execution. Cache brings the strategy to you through a modern, online platform.

The minimum investment is $1M. And your assets are held in a separately managed account at Charles Schwab, in your name.

Cache Long/Short is built for investors who have significant unrealized or ongoing capital gains, a high marginal tax rate that makes tax efficiency materially valuable, a multi-year investment horizon, and comfort with margin, leverage, and portfolio complexity.

It may not be appropriate if you don’t have meaningful taxable gains to offset, are uncomfortable with margin borrowing, want a one-time tax solution rather than an ongoing strategy, or prefer simple, long-only portfolios.

This strategy involves leverage, financing costs, and operational complexity. For the right scenario, those tradeoffs make sense. For others, simpler tools (like direct indexing or a straightforward sale) may be a better fit.

Here’s when investors typically consider this strategy, and what to weigh in each case.

1. Diversify 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.

See: Two Paths to Tax-Efficient Diversification‍

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. This could be 3-5 years for a 145/45 strategy, or 15+ years for estate planning or wealth transfer scenarios, 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. Consult your tax advisor before making decisions based on these scenarios.

More control over your taxes. The strategy seeks to generate a renewable supply of capital losses you may apply against taxable gains, while keeping your portfolio fully invested.

The key advantage over traditional tax-loss harvesting: in a long-only portfolio, harvestable losses tend to dry up as markets rise and positions appreciate. By adding short positions, the portfolio is designed to seek to produce harvestable losses across a wider range of conditions, including bull markets, because short positions can lose value even when stocks go up.

The strategy doesn’t eliminate taxes. It seeks to defer them, giving you more control over when and how much you pay.

Compare: List of tax-aware long/short providers

No.

Cache Long/Short is a separately managed account held in your name at Schwab. You own the underlying securities directly.

The investment strategy is rigorous, but the structure is intentionally simple and transparent: professional portfolio management delivered through a personal brokerage account.

They solve different parts of the same problem, and they’re often used together.

An exchange fund lets you diversify immediately, without triggering tax, but requires a seven-year holding period. Cache Long/Short may complement that by helping you manage remaining positions more flexibly, seeking to generate tax losses to offset gains as you gradually sell shares, handle fund distributions, or plan for future liquidity events.

You can use both: an exchange fund for the portion you’re comfortable locking up, and Cache Long/Short for the portion you want to work down over time.

You open a managed account at Schwab. Inside it, Brooklyn Investment Group (BKLN) builds a diversified portfolio of long and short positions around your existing holdings.

The portfolio holds more long exposure than short, keeping your net market exposure close to 100%. The structure creates two sources of harvestable losses: long positions that decline in value, and short positions that rise in value. As markets move, BKLN seeks to realize those losses deliberately and consistently.

The realized losses show up on your tax forms and may be applied against gains from selling stock, fund distributions, or other taxable events. Realization and usability depend on market movements, trading activity, and applicable tax rules.

Traditional tax-loss harvesting and direct indexing both rely on selling stocks that have declined. That works well early on, but over time, as markets rise, portfolios fill with appreciated positions and harvestable losses become scarce. The strategy gradually stalls.

Some direct indexing providers harvest when rebalancing back to a benchmark, which can extend the runway, but often generates gains as positions are trimmed toward target weights.

Cache Long/Short addresses this by adding short positions. Shorts lose value when stocks rise, so the portfolio may have a source of harvestable losses even in strong bull markets. The strategy seeks to produce harvestable losses whether markets rise, fall, or move sideways, rather than depending primarily on downturns.

Capital losses can offset capital gains, subject to IRS rules. In practice, that includes gains from selling concentrated stock, gains from ETFs, mutual funds, or individual stocks, capital gains distributions from funds, and certain gains from taxable liquidity events.

Losses offset gains of the same type first (short-term offsets short-term; long-term offsets long-term). If losses exceed gains of that type, they can offset the other category.

Individual tax outcomes depend on your full tax picture. Cache does not offer tax or legal advice. Coordinate with a tax professional when applying harvested losses.

No.

The amount of losses generated, and the resulting tax benefit, depend on market conditions, portfolio activity, tax rules, and your individual circumstances. Results vary, and specific tax outcomes cannot be guaranteed.

The objective is to improve after-tax outcomes over time through deliberate management of gains and losses, not to guarantee the elimination of taxes or a fixed level of savings.

While everyone’s situation is different, investors may see usable losses within the first year. In volatile or rising markets, the short extension can generate losses relatively quickly. In flatter markets, benefits may accrue more gradually.

Cache Long/Short works over multiple years. It’s most effective as an ongoing tax management tool, not a one-time fix.

Cache Long/Short relies on broadly established principles: the ability to realize capital losses and use them to offset gains. Changes to tax rates, loss-offset rules, or margin regulations could affect the strategy’s value.

Cache and BKLN monitor regulatory developments and adapt where needed. Consult your tax advisor about how any changes may affect you.

Yes.

The short extension requires margin approval at Schwab.

Margin introduces additional risk, including the possibility of margin calls during periods of market stress. This is one of the most significant risks of the strategy.

BKLN offers different leverage ratios (such as 130/30, 145/45, or 200/100). Higher leverage may increase loss-harvesting potential but also increases cost and exposure to margin calls and amplified losses. The appropriate level depends on your goals and tolerance for margin-related risk.

Before investing, make sure you understand how margin works and how it could affect your portfolio in different market environments.

Cache Long/Short seeks to improve after-tax outcomes, but it comes with real risks.

Market risk. The portfolio remains exposed to equities. If markets decline, the account can lose value.

Leverage and margin risk. Margin creates long and short positions. During market stress, losses can be magnified and margin calls are possible. BKLN seeks to maintain low leverage and diversified positions to reduce this likelihood, but these measures do not eliminate the risk.

Short exposure risk. Short positions can rise unexpectedly. Positions are diversified across hundreds of stocks and managed systematically, but sharp moves can create short-term losses.

Tracking error. Because the portfolio is actively managed for tax outcomes, returns may differ from the benchmark.

Financing costs. Margin interest and stock-borrow costs reduce returns. These vary with market conditions.

Tax and regulatory risk. Changes in tax law could reduce the strategy’s effectiveness.

All investments carry risk, including loss of principal. Diversification may help manage risk but does not guarantee profit or protect against loss. Review the Form ADV carefully before investing.

Yes, it is possible.

Because the strategy uses margin and short positions, losses are not capped the way they are in a long-only portfolio.

However, BKLN institutes numerous controls and safeguards designed to minimize this risk. For instance, BKLN caps single-stock active positions, avoids expensive-to-borrow stocks, and runs low levels of active risk relative to the benchmark. These measures reduce, but do not eliminate, the risk of outsized losses. Higher leverage ratios increase both the potential for tax-loss generation and the potential for loss.

This strategy is appropriate only for investors who understand these mechanics and have the financial flexibility to absorb losses beyond their initial investment. Before investing, review Schwab’s margin disclosure statement and the Form ADV carefully.

Cache Long/Short is designed to be liquid. Your holdings are publicly traded securities in an SMA at Schwab, not a fund with lockups.

You can request withdrawals at any time. The portfolio is adjusted by selling longs and covering shorts to raise cash while keeping the account within margin requirements. Under normal conditions, this takes a few days.

A few nuances: because the portfolio uses margin, positions need to be unwound in an orderly way, so withdrawals aren’t instant. Large or frequent withdrawals can trigger realized gains or losses and may reduce future harvesting capacity. During extreme market conditions, unwinding may take longer.

If you need cash unexpectedly (home purchase, taxes, an unplanned expense), the process is the same. You retain access to your capital without the lockups of exchange funds or private vehicles.

Exiting is deliberate and tax-aware, not instantaneous. Transitions ideally occur gradually, which helps avoid triggering a large immediate tax bill and allows previously harvested losses to offset gains as they’re realized.

You decide when to begin. BKLN manages execution by gradually reducing the long/short extension and moving the portfolio toward an unlevered, diversified core. Some investors unwind slowly to spread taxes across multiple years. Others accelerate if outside liquidity (from an IPO, business sale, or other event) gives them flexibility to absorb gains faster.

There’s no fixed timeline, but most investors should expect several years, not months. Exiting too quickly compresses the tax benefit. To preserve efficiency, exits should be managed within the strategy. Unwinding positions independently can result in unintended gain realization.

Tax outcomes vary by individual circumstances and market conditions. Consult your tax advisor when planning an exit.

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You can exclude restricted stocks from trading and provide outside positions so the strategy manages around them, reducing the risk of accidental wash sales or policy violations.

Cache Long/Short manages wash-sale risk at the household level, not just inside a single account.

When you provide account information to Cache, it’s transmitted to Brooklyn Investment Group (BKLN), whose system monitors trading activity and applies automated controls to reduce the likelihood of disallowed losses. Restricted or employer-related securities can be excluded, and loss-realizing trades are coordinated to avoid repurchasing substantially identical securities within the wash-sale window.

This doesn’t eliminate wash-sale risk entirely, especially when external accounts or discretionary trades are involved, but it significantly reduces accidental violations. If your outside holdings change, let us know so they can be factored in.

A wash sale occurs when a position (or substantially similar position) is bought and sold within a 61-day window: 30 days before the sale, the day of the sale, and 30 days after. The rule applies across all accounts the investor owns, including IRAs, Roth IRAs, and accounts owned by a spouse.

Yes.

You can provide a list of restricted securities (due to employer policies, insider status, or personal preference) and those stocks will be excluded from trading, subject to review and approval.

Three parties are involved, each with a distinct role.

Brooklyn Investment Group (BKLN) manages the portfolio: construction, risk modeling, and day-to-day trading. Cache owns the client experience: onboarding, configuration, education, reporting, and the tax and performance dashboard. Cache also serves as the advisor responsible for overseeing the strategy’s implementation, but does not trade the portfolio. Charles Schwab custodies the account and executes trades. Assets are held in your name.

Cache does not take physical custody of client assets. Schwab serves as the independent custodian.

Your assets stay at Schwab. Your portfolio is held in an SMA in your name, not commingled with Cache’s or BKLN’s corporate funds.

Trading would stop, but ownership doesn’t change. You could transfer the account, appoint a new advisor, or liquidate positions (subject to normal market and tax considerations). Schwab would continue providing account access, statements, and custody protections.

From Schwab: Regular brokerage statements and annual tax forms (Form 1099-B for realized gains and losses, Form 1099-DIV and 1099-INT if applicable). These are the same forms you’d receive from any taxable brokerage account.

From Cache: In-app visibility into realized short-term and long-term losses, net tax dollars harvested, and ongoing gains and losses as they accrue. This is informational reporting, not a replacement for official tax forms.

Cache does not issue tax forms or provide tax advice. All official tax reporting comes from Schwab. You (or your tax advisor) determine how harvested losses are applied on your return.

Cache Long/Short has three primary cost components.

Advisory fee: Typically 0.50% annually for a standard 130/30 portfolio. Higher extensions (175/75, 200/100) carry higher fees disclosed in your advisory agreement.

Financing costs: Margin interest on borrowed capital can vary across vendors. For a 130/30 portfolio, while variable, we have seen that a 0.28% financing cost (or 0.17% after tax deductions) is typical. These scale and increase with the extension and fluctuate with interest rates.

All in costs: Apart from the advisory fee and financing costs you bear (about 0.78% for 130/30), there are also additional costs from borrowing stocks for shorting, and trading costs from a high turnover portfolio.

Don’t compare this to an index fund. The relevant comparison is ongoing costs versus avoided taxes.

If you sell a highly appreciated position outright, you may owe 30%+ in combined taxes immediately. That’s a permanent reduction in invested capital. Cache Long/Short at 130/30 has annual management fees of approximately 0.50% plus financing costs.

Cache Long/Short's costs consist of an annual management fee and annual financing costs necessary to execute the strategy — as an example, 130/30 has a 0.50% management fee and an estimated 0.17% financing fee (post-tax). Higher-leverage extensions have higher fees.

Visit our Concentrated Stock Calculator to see the impact (net of any fees) of selling and incurring capital gains taxes upfront vs. using Cache Long/Short or Cache Exchange Fund.

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Holding the concentrated position. No costs or taxes today, but you stay exposed to single-stock risk. Taxes don’t disappear; they’re deferred and grow as the stock appreciates.

Selling outright. Immediate diversification and elimination of single-stock risk. But a large, one-time tax hit (often 30% to 40% of gains), paid immediately and irreversibly.

Using Cache Long/Short. Gradual diversification while staying invested. Potential ability to offset gains with harvested losses over time. Flexibility to adjust pace. The tradeoffs: ongoing costs, added complexity (including leverage and short exposure), tax benefits that accrue over time rather than immediately, and a required multi-year horizon.

There’s no perfect answer. The choice depends on which cost you’re most willing to accept.