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Method and computer program for tax sensitive investment portfolio management

  • US 8,001,029 B2
  • Filed: 03/26/2004
  • Issued: 08/16/2011
  • Est. Priority Date: 03/26/2004
  • Status: Active Grant
First Claim
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1. A method for managing investment portfolios using a computer, the method comprising:

  • identifying a plurality of investment portfolio securities to be sold in connection with a rebalancing of the investment portfolio based on a difference between securities in the investment portfolio and a target portfolio;

    randomly allocating, using the computer, the plurality of investment portfolio securities to at least one of a plurality of tax lots associated with the plurality of investment portfolio securities to be sold, wherein the plurality of securities to be sold are allocated to at least one tax lot associated with the securities to be sold based on at least one random allocation strategy selected from the group consisting of;

    randomly allocating the securities to be sold beginning with an earlier tax lot of a plurality of tax lots and proceeding to a later tax lot; and

    randomly allocating the securities to be sold beginning with a tax lot of a plurality of tax lots having a higher cost basis and proceeding to a tax lot with a lower cost basis;

    computing, with the computer, an implied total short-term capital gain or loss that would result from the sale of the plurality of investment portfolio securities from the at least one tax lot; and

    rebalancing, using the computer, the investment portfolio if any of the short-term capital gain or loss, which would result from the rebalancing of the investment portfolio, falls within a threshold for short-term capital gains or losses, and not rebalancing the investment portfolio if any of the short-term capital gain or loss does not fall within the threshold.

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