I have spent years studying investments that can withstand rough markets and reduce tax burdens. One strategy I use checks both boxes. It has three aims that set it apart. It seeks equity diversification, downside resilience, and meaningful tax relief. I call it a triple threat because it tries to do all three at once.
The core idea is simple. You want returns that do not rely on stocks going up. You want protection during market stress. And you want a built-in tax benefit that shows up each year. As CEO of LifeGoal Wealth Advisors and a CIMA and CFP, I focus on practical, disciplined solutions. This one has earned a large share of my own investable dollars this year.
“The triple threat investment, first, has outperformed the S&P 500 since inception. Second, it’s gone up in value each time the S&P 500 has meaningfully sold off… And three, [it] creates a 30% tax deduction against your ordinary income every year you hold it.”
What Makes It a Triple Threat
Three features shape the approach. First, the return target aims to beat the S&P 500 over a full cycle. Second, it has tended to rise during major equity sell-offs. Third, it generates a recurring deduction against ordinary income. That deduction is meaningful for many households and business owners. It can lower the marginal tax bill in the current year, not just in the future.
The strategy’s record includes periods when stocks fell hard. In 2022, the S&P 500 dropped about 19%. This approach, as I use it, was up about 5% during that period. That is the kind of support I want when volatility spikes and fear takes over. Stocks do not need to rise for the plan to work. That alone changes the math for risk and cash flow.
“Since inception, it’s returned 26.4% per year between the investment return and the tax benefit.”
That figure includes both market gains and the tax value. The tax reduction can be large. For example, a $1,000,000 allocation can create roughly a $300,000 deduction against ordinary income each year you hold it. That can reduce taxable wages or business income by that amount. The exact benefit varies by tax bracket and individual situation. The value is the combination of market behavior and tax savings.
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Key Takeaways at a Glance
- Designed to outperform the S&P 500 over time while not relying on rising stocks.
- Historically showed strength during sizable equity sell-offs, such as in 2022.
- Targets an annual 30% ordinary income deduction while the position is held.
- Combined return since inception cited at 26.4% per year, including tax effects.
- My own capital allocation reflects confidence in the approach and its role.
How the Strategy Fits a Portfolio
Diversification is about more than holding many line items. It is about different return drivers. Most portfolios lean on stocks and bonds. When both fall, many investors feel stuck. I want a piece that can rise when stocks fall. I also want a known tax feature. That combination can change how a full plan behaves in stress.
In practice, this kind of position can sit beside an index fund or a bond ladder. It does not replace core holdings for most people. It supports them. The goal is a smoother ride and better after-tax results. When stocks surge, it may lag. When stocks tumble, it can shine. That see-saw helps the total portfolio.
Cash flow matters. The recurring tax deduction can lower quarterly estimates and year-end bills. That frees cash for saving, debt paydown, or business needs. For high earners, the marginal rate can make the deduction especially useful. The value is not only in April. It is in how you plan the full year.
Understanding the Tax Angle
The 30% ordinary income deduction is the third leg of the stool. It is recurring while the position is held. That is rare. Many tax plays give a one-time benefit. This is different. It stacks each year. The result is a better after-tax yield, even in flat markets.
Here is a simple example. Assume a $1,000,000 position and a 35% marginal tax rate. A $300,000 deduction can reduce taxes by about $105,000 in that year. If market return nets out to 5% in a choppy year, the tax value adds a second return source. With both, your total after-tax result can still stack up well. The math varies by bracket and state. Each investor should run their own numbers with a tax professional.
Important note: deductions are subject to rules and limits. Income phaseouts, passive activity rules, at-risk rules, or other IRS limits can adjust them. Always verify how the deduction applies to you. The concept is powerful. But details determine the true result.
Behavior During Market Stress
Market stress is when diversification shows its worth. In 2022, bonds fell with stocks. Many investors felt no shelter. An allocation that rises when stocks fall gives psychological and financial relief. It can reduce the urge to sell at the worst time. It can also free up cash to buy during dips.
When planning for drawdowns, I look at how each sleeve behaves when the S&P 500 drops 10%, 20%, or more. A piece that is flat or positive during those windows changes the plan. It does not erase risk. It shifts it to a different driver. That is the point. You accept a different set of risks in exchange for less reliance on one market.
Who Might Consider It
This type of strategy can be helpful for high earners, business owners, and investors with large taxable accounts. The ordinary income deduction can be especially helpful for those with high marginal rates. It can also appeal to those who want a hedge against equity sell-offs but do not want to time markets.
It is not one-size-fits-all. Investors with low current tax rates may value the deduction less. Those with very short time horizons may not fully benefit from the annual tax feature. Liquidity needs also matter. If you need cash in the next year, size the position accordingly.
Measuring Results the Right Way
When evaluating a strategy like this, focus on after-tax returns and the pattern of returns. Before-tax returns tell only part of the story. The deduction changes the final outcome. Track both the market gain and the tax value each year. View them together.
Also, examine the role in your total portfolio. Does it lower volatility? Does it improve drawdown behavior? Does it help you stay invested during stress? Those answers matter as much as a headline return number.
Risk, Costs, and Due Diligence
Every investment has risk. This approach trades market risk for different risks. There may be strategy risk, liquidity risk, manager risk, or tax rule risk. Costs also matter. Understand fees, expenses, and any embedded costs. Net results are what count.
Before allocating, I review several items. I look at the audited performance and how returns were calculated. I examine the pattern of returns during past drawdowns. I review the tax opinion and the supporting documentation for deductions. I ask about liquidity, lockups, gates, and redemption timelines. I study counterparty exposure and collateral rules if derivatives are involved. I compare costs to peers.
Documentation needs to be clear and complete. I want to see how the strategy trades, hedges, and manages tail events. I also want to understand how the tax benefit works in practice, including any K-1 timing, state treatment, and potential recapture. Alignment matters. I commit my own capital when I believe the design and controls are sound.
Scenario Planning and Position Sizing
Position sizing should reflect your goals, tax bracket, and liquidity needs. A common approach is to size it as part of an alternatives sleeve. That can sit at 10% to 30% of a portfolio for some investors, depending on risk tolerance. Others may choose a smaller tilt. There is no single right answer.
Build a base case, an upside case, and a drawdown case. Include taxes in each case. Test how the plan holds up if stocks rally, drift, or fall. Make sure you are comfortable with the path of returns, not just the endpoint.
What I Look For Before I Invest
Several standards guide my work. I want clear evidence of diversification from equity beta. I want a track record across different regimes. I expect a credible tax framework that has professional support. I want transparency on fees and liquidity. And I value managers with strong risk controls and clear reporting.
I also focus on how the strategy behaves around turning points. Strong performance in 2022 is helpful. How did it act during 2020’s sharp sell-off? What about the late 2018 drop? Performance in these windows builds trust. It shows whether the design performs as claimed under real stress.
Practical Steps to Get Started
Before you move, set your goal and constraints. Clarify why you want the allocation. Confirm your tax situation and your time horizon. Decide how much liquidity you require. Then gather documents, read them closely, and ask pointed questions. If you work with an advisor, involve them early. If you manage your own plan, stay disciplined and methodical.
Document your reasons for the investment. Write down how you will measure success. Set a review schedule. Track both the market return and the tax benefit. Expect periods of underperformance amid periods of stock market soaring. That is the trade you make for support during sell-offs. Stick to the plan you set in calm moments.
Final Thoughts
A strategy that aims to beat stocks over time, hold up in sell-offs, and cut your ordinary income taxes is rare. That is why this triple threat has my attention and my capital. It seeks to solve three problems at once. It can change the shape of returns, not just the size.
No single solution fits every investor. Your tax rate, goals, and risk limits drive the decision. If the features align with your needs, do the work. Review the data. Verify the tax support. Size it properly. Then let the plan work. The goal is a smoother ride and better after-tax results without relying on constant stock gains.
