401 (k) CRT Foundation   Uniform Equity Structure Public and Private Equity Uniform diversified public equity 28.2% Core equity - Satellite equity - Private equity fund 10.5% 0.0% 0.0% 25.6% 2.6% 0.0% 0.0% 6.7% 3.8%   Fixed Income and Money Market Taxable 10-year AA bond Tax-exempt 5-year bond Taxable money market fund Alternative Investments Hedge funds Core and Satellite Equity Structure Public and Private Equity Uniform diversified public equity Core equity Satellite equity Private equity fund Fixed Income and Money Market Taxable 10-year AA bond Tax-exempt 5-year bond Taxable money market fund Alternative Investments Hedge Fund 38.7% 0.0% 22.4% 28.9% 51.3% 10.0% 0.0% 0.0% 0.0% 0.0% 22.4% 0.0% 0.0% 0.0% 25.6% 3.2% 0.0% 0.0% 0.3% 0.0% 0.0% 9.7%   0.0% 0.0% 0.0% 0.0% 0.0% 16.5% 16.5% 0.0% 0.0% 0.0% 16.5% 0.0% 0.0% 12.0% 4.5% 10.1% 10.1% 0.0% 0.0% 0.0% 43.1%         0.1% 0.0% 0.1% 0.0% 0.1% 18.4% 18.4% 0.0% 0.0% 0.0% 28.4% 3.4% 3.2% 20.3% 1.6% 46.9%         10.0% 0.0% 0.0% 0.0% 10.0% These are likely to generate realized short-term gains. If Mr. Smith were to sell the stocks that have declined in value within his core equity portfolio and reinvest into similar stocks, he would realize a short-term capital loss. If that loss could be netted against the realized gains distributed by the hedge funds, Mr. Smith will reduce his current year tax liability. That tax savings enhances his current and future wealth. The tax loss harvesting transaction will reduce the cost basis of his equity portfolio. However, because he intends to eventually give the equities to his foundation, he is not concerned with their cost basis. In this case, applying 40 percent ordinary tax rate to the realized short-term loss would provide Mr. Smith with the equivalent of an extra 2.4 percent after-tax return from his core equity portfolio. This extra return comes not from taking additional risk but rather by being more clever in utilizing the tax code's flexibility.