Method and apparatus for tax efficient investment management

A method for managing a tax efficient portfolio for each of a plurality of investors, the method comprising the following steps:

• constructing an investment portfolio comprising a plurality of securities selected to substantially replicate the performance of an index;
• establishing an individual portfolio for each of the plurality of investors wherein each investor owns shares in at least some of the securities comprising the investment portfolio;
• periodically determining a change in value between a present value and a past value of each of the at least some securities owned by at least some of the investors and comparing the change in value to a predetermined tax loss threshold to identify tax harvest securities;
• selling the tax harvest securities;
• purchasing shares of funds to temporarily replace the sold securities;
• after at least a minimum delay period required by Internal Revenue Service wash sale rules, repurchasing the securities sold as tax harvest securities.

An apparatus for automatically harvesting tax losses and rebalancing an investment portfolio, the apparatus comprising:

• an accounting system for maintaining position data and tax data for at least one individual portfolio;
• a tax lot harvesting system for calculating a difference between a present value and a past value of selected securities in the investment portfolio, comparing the difference to a predetermined tax loss threshold, and ordering a tax loss harvest sale of such tax loss harvest securities when the difference exceeds the predetermined threshold;
• a temporary fund management system for ordering the purchase of shares of funds to replace tax loss harvest securities to be sold, and for ordering the sale of shares of funds held for at least a predetermined time;
• a security repurchase management system for repurchasing tax loss harvest securities at least the predetermined time after they have been sold;
• and
• a trading system for causing an external trading system to execute a trade in response to the sales and purchase orders from the tax lot harvesting system, the temporary fund management system, and the security repurchase management system.