Every February, I open one envelope with unusual curiosity: my 1099 from our custodian. It shows how much “income” my investments produced last year.

As an investor, I appreciate what that number represents. As a taxpayer, I also know what comes next: plugging it into a projection and watching how it changes what we’ll owe in April.

For me, it’s manageable. I’m still early in my career, and my portfolio is mostly stocks. But for many of the families we serve at Hill, this number can grow large enough that it doesn’t only affect their tax return — it starts to affect their entire financial plan.

And historically, there hasn’t been much we could do about it… until now. 

Longview Advantage Fixed Income ETF (LVIG) is an ETF from our research partner, Longview Research Partners. Its aim is to solve a part of planning we historically could not control: Traditional bond investments generate taxable income whether you need it or not.

LVIG is built to avoid those automatic income distributions. Meaning more of the return stays inside the portfolio, which gives us control over how income shows up in your plan.

Like EBI, LVIG will be used inside Hill’s models. It may not be noticeable for younger, equity-heavy investors today. But as portfolios shift over time toward a higher allocation of fixed income, LVIG becomes a meaningful planning tool as well as an outstanding investment.

1. Roth IRA conversions: Less portfolio income means more flexibility to convert traditional Individual Retirement Accounts (IRAs) to Roth IRAs during lower-income years.

2. Asset location: We can comfortably hold fixed income in taxable accounts and reserve IRA and Roth space for equities, where long-term growth benefits most.
   
   
3. Medicare and income cliffs like IRMAA (Income-Related Monthly Adjustment Amount), NIIT (Net Investment Income Tax), AMT (Alternative Minimum Tax):  Keeping income lower makes it easier to stay below thresholds that trigger higher premiums and additional taxes.
   
   
4. Trust planning: Trusts hit top tax brackets more quickly than individual tax brackets. Therefore, minimizing ordinary income allows trustees to distribute based on need, not tax pressure.
   
   
5. Estate planning and step-up in basis: More return remains to compound as unrealized growth that may receive a step-up for heirs instead of getting taxed each year.
   
   
6. Capital gains control: Lower income gives us more favorable opportunities to harvest gains at lower tax rates.
   
   
7. Retirement cash flow: We can create distributions intentionally by selling shares at long-term capital gains tax rates rather than generating unpredictable taxable income.

Most of these benefits become especially impactful for clients who are retired or approaching retirement, have large taxable portfolios, are doing Roth conversions, have trusts, or are mindful of Medicare premium thresholds.

For younger clients, this may feel less important today. But over time, as allocations shift toward bonds, it becomes one of the more impactful planning levers available.

This is a good example of the subtle but powerful improvements we like making for clients at Hill Investment Group. Changes that not only improve your investment outcomes, but also make your plan work better behind the scenes.

While LVIG is something we are bringing to Hill portfolios, it will be a publicly traded ETF and available to all investors. Therefore, if you know someone navigating retirement, taxes, or trust planning who could benefit from greater flexibility, feel free to share this with them or have them reach out to us directly to see how we can be most helpful. Here’s the best link to get in touch with us.

Imagine this: You walk into a grocery store and buy a bag of apples priced at $1.50 – no sales tax. You hand the cashier two $1 bills. He hands you $0.40 in change and wishes you a nice day.

“Wait,” you say. “Don’t you owe me another dime?

“Oh, no,” he replies cheerfully. “I always keep a little extra for myself. I hope you don’t mind.”

As wrong as this may sound for the produce aisle, similar practices go on every day in muni and corporate bond markets, where they’re called markups and markdowns. Essentially, these are the commissions a bond broker/dealer takes out of your account for executing your trades. You incur a markup cost when you buy a bond and a markdown cost when you sell.

That last one is especially confusing, since a “markdown” usually means you’re getting a discount. Here, it means less money is heading into your pocket. And unless you have access to a (costly) Bloomberg terminal or similar resource, plus the details of your own trade, it’s usually an expense you never knew you incurred. Even with Bloomberg, here’s a peek at what a typical bond screen there looks like. Not so simple to decipher.

Given the relatively opaque nature of bond pricing, here’s how a typical transaction might work: Say you receive a nice, clean trade statement informing you that your bond broker just purchased a muni bond for your portfolio for $10,200 and sold one out of your portfolio for $9,800. Seems clear enough.

But here’s what may really have happened: The market rate of the bond you bought for $10,200 was actually only $10,000; the broker charged you a $200 markup and kept the difference. The bond you sold actually fetched you a market rate of $10,000, but the broker charged you a $200 markdown. For both trades, you paid the broker a relatively steep 2% fee.

We’re not suggesting bond brokers should work for free. One way they earn their keep is by charging you to transact your trades. That’s fair. But we’re less enthused about the relative lack of transparency on the amounts being charged.

This is especially concerning, since individual, retail traders are far more likely to incur higher transaction costs than large, institutional investors can command (such as a mutual fund company managing a fixed income fund). As described in this Vanguard report, “[I]n the municipal bond market, the bid-ask spread for a “retail” trade (less than $100,000 per bond) is typically higher than that for an institutional trade—sometimes substantially so.”

In the stock market, transaction fees are clearly disclosed on every trade confirmation. Plus, current stock prices are widely available to look up online, using any number of free services. It’s easy to see if the prices at which you bought or sold were vastly different from the “rack rate.” If transaction fees get out of line, you should be able to catch that too.

Compared to the stock market, the going price for bonds is much harder to find (again, usually requiring a costly Bloomberg subscription or similar service). And transaction costs are often hidden away within the totals on your trade confirmations. This makes it more difficult to tell whether or not you’ve received a fair deal.

Fortunately, over time, we’ve seen improvements in bond market pricing data and transaction cost disclosures. Last May, new regulations went into effect, requiring brokers to disclose markups and markdowns on bonds they sell to retail investors (that’s you) within the same trading day in which they bought them. The disclosures are reported to you after the trade has occurred.

That’s a start. But why not always require markup/markdown disclosures, for all types of bond trades? While we’re at it, why not require markup/markdown fees be disclosed in advance, in case you would like to do your due diligence on costs before you’ve already incurred them?

These are good questions. We hope, over time, they will be answered with continued clarifying action, until bond trades are at least as transparent and competitively priced as we see in the stock markets.