Risk Parity may affect your taxes in two ways:
- Risk Parity is delivered in the form of a mutual fund. Mutual funds are required by law to distribute any net capital gains realized within the fund at least annually. If the net capital gain results from securities held for one year or less, it will be distributed as a cash dividend, and will be taxable at ordinary income rates. If the net capital gain results from securities held for more than one year, it will be distributed as a long-term capital gain (which is taxed at a lower rate than ordinary income). Whenever possible, we seek to optimize trading within the Risk Parity Fund to generate long-term capital gains, as these can be further offset by losses harvested in other parts of your diversified portfolio. However, you may experience an increased amount of ordinary income distributions from your Wealthfront portfolio as a result of investing in the fund, and harvested losses may only be applied to up to $3,000 of ordinary income each year.
- If you are an existing client, we must sell some of your portfolio holdings to invest in our Risk Parity mutual fund. If we sell your positions at a gain, and you do not have sufficient harvested losses over the course of the year to offset those gains, you’ll pay taxes on the net gain. Learn more about how we reallocate your portfolio into Risk Parity.
The Wealthfront Risk Parity Fund (the “Fund”) is managed by Wealthfront Strategies LLC (formerly known as WFAS LLC), a registered investment adviser and a wholly owned subsidiary of Wealthfront Inc. Wealthfront Strategies LLC receives an annual management fee equal to 0.25% of the Fund’s average daily net assets. Northern Lights Distributors, LLC, a member of FINRA and SIPC, serves as the principal distributor for the Fund. Wealthfront Inc., is not affiliated with Northern Lights Distributors, LLC.
Before investing in the Wealthfront Risk Parity Fund, you should carefully consider the Fund's investment objectives, risks, fees and expenses. This and other information can be found in the Fund’s prospectus. Please read the fund prospectus or summary prospectus carefully before investing. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.
In order to add the Wealthfront Risk Parity Fund, we must rebalance your portfolio. As part of this process, if we sell positions at a gain, and you do not have sufficient harvested losses to offset those gains, you’ll pay taxes on the net gain.