Improving long-term portfolio risk and return by using appreciated stocks for charitable donations

Authors

  • Jeff Whitworth College of Business, University of Houston-Clear Lake

DOI:

https://doi.org/10.61190/fsr.v27i3.3397

Keywords:

Portfolio risk, Diversification return, Tax-efficient investing, Capital gains, Stock donation

Abstract

Stock investors who are charitable donors can minimize capital gains taxes and improve portfolio diversification by donating their most appreciated shares instead of cash, and then investing the freed-up cash in the portfolio’s least-weighted stocks. The charity is indifferent to the donation method, and the investor receives the same charitable deduction. Monte Carlo simulations show that a donor-investor using this method enjoys substantially higher wealth and lower portfolio risk, particularly over longer time horizons. This strategy can be integrated with tax loss selling and some limited gain harvesting to further increase after-tax returns and reduce risk.

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Published

2018-09-30

How to Cite

Whitworth, J. (2018). Improving long-term portfolio risk and return by using appreciated stocks for charitable donations. Financial Services Review, 27(3), 257–277. https://doi.org/10.61190/fsr.v27i3.3397

Issue

Vol. 27 No. 3 (2018): Fall 2018

Section

New Original Submission

License

Copyright (c) 2018 Academy of Financial Services

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