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Building Wealth Wisely: The Power of Diversification and Tax Efficiency

  • Oppenheimer & Co. Inc.
  • April 16, 2024

A diversified and strategic asset allocation is crucial for mitigating risks associated with market volatility. By spreading investments across various asset classes such as stocks, bonds, and various alternative asset classes – including real estate, private equity, and private credit –  you can potentially reduce the impact of any single market downturn on your overall portfolio.

Your Oppenheimer financial advisor can help develop a carefully constructed strategic allocation allowing you to align investments with your risk tolerances, financial goals, and time horizons, ensuring a balanced and optimized approach to wealth accumulation and preservation.

Leveraging Tax Efficient Strategies

Within a diversified portfolio allocation, integrating a tax-efficient strategy—like direct indexing, which involves the purchase of individual securities to mimic the performance of a broad market index—can further enhance returns and minimize tax liabilities. Techniques such as tax-loss harvesting, where selling investments at a loss to offset capital gains, and utilizing tax-advantaged accounts like IRAs and 401(k)s can further enable tax optimization.

Moreover, allocating investments based on tax efficiency, such as holding tax-inefficient assets in tax-deferred accounts and tax-efficient assets in taxable accounts, can help reduce the overall tax burden and enhance after-tax returns.

Integrating these strategies into an investment approach can maximize wealth accumulation potential while minimizing obligations come tax time. Read below for information on some of the most commonly used investment approaches.


IRA accounts are designed to help individuals save for retirement. Contributions to traditional IRAs may be tax-deductible, and earnings grow tax-deferred until withdrawal. Roth IRA contributions are made with after-tax dollars, but withdrawals in retirement are tax-free.

401(k) plans are employer-sponsored retirement accounts where employees can contribute a portion of their salary, often with employer matching contributions. These contributions are made with pre-tax dollars, reducing current taxable income, and earnings grow tax-deferred until withdrawal in retirement.

Similar to traditional 401(k) plans, Roth 401(k) plans are employer-sponsored retirement accounts, but contributions are made with after-tax dollars. However, qualified withdrawals in retirement, including earnings, are tax-free, providing tax-free income during retirement.

529 plans are education savings accounts that offer tax advantages for funding higher education expenses. Contributions to 529 plans grow tax-deferred, and withdrawals for qualified education expenses, such as tuition, books, and room and board, are tax-free at the federal level, and at the state level in many cases.

Direct indexing involves purchasing individual stocks that mirror the composition of a market index, allowing investors to customize their portfolio and potentially realize tax advantages through tax-loss harvesting and managing capital gains.

Certain insurance policies, such as cash-value life insurance and annuities, offer tax advantages. Cash-value life insurance policies accumulate cash value on a tax-deferred basis, and withdrawals up to the policy's basis are generally tax-free. Annuities provide tax-deferred growth, and in some cases, distributions may be taxed at a lower rate if held until retirement age.

1031 exchanges, also known as like-kind exchanges, allow investors to defer capital gains taxes on the sale of investment property by reinvesting the proceeds into a similar property. This strategy enables investors to defer taxes and potentially grow their wealth by continually reinvesting in real estate.

Municipal bonds are debt securities issued by state and local governments to finance public projects. The interest income generated from municipal bonds is typically exempt from federal income tax, and in some cases, state and local taxes, making them attractive to investors seeking tax-free income. 

Trusts are legal arrangements where a trustee holds assets for the benefit of one or more beneficiaries. Certain types of trusts, such as charitable trusts and irrevocable life insurance trusts, offer tax advantages, including potential estate tax savings, income tax benefits, and asset protection. Trusts can be powerful tools for tax planning and wealth transfer strategies.

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Oppenheimer Asset Management is the name under which Oppenheimer Asset Management Inc. (OAM) operates.  OAM is a wholly-owned subsidiary of Oppenheimer Holdings Inc., which also wholly owns Oppenheimer & Co. Inc. (Oppenheimer), a registered broker/dealer and investment adviser.  Securities are offered through Oppenheimer. 

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