We have all heard the phrase “it’s not timing the market, but time in the market” that matters most for investment returns. Even so, it’s human nature to want to wait for the right moment to invest. History shows, however, that time in the market can make up for poor market timing.

Consider, for example, a hypothetical investor with $100 to invest in late 2008. Let’s also assume that this investor had rotten luck and invested that $100 the day before Lehman Brothers filed for bankruptcy (triggering massive global market turmoil). The chart below shows that while it would have taken 409 trading days for our investor to recoup his initial investment, his portfolio would have returned over 10% annually through the end of 2025.

Of course, there are ways our investor could have hedged his entry point if September 15, 2008, did not feel like the right time to invest. Buying put options or selling calls come to mind, but options come with steep premiums in the case of the former, or capped upside return potential in the case of the latter. “Averaging into the market” is another potential strategy our investor could have implemented, but tax-managed equity (TME) provides an even more elegant solution to hedge entry-point anxiety.

What is tax-managed equity (TME)?

BBH’s TME strategy is designed to deliver broad market exposure while actively managing taxes along the way. Instead of owning a single index fund, TME portfolios hold the individual securities that make up the benchmark. This structure allows us to apply quantitative portfolio construction techniques to manage tracking relative to the benchmark, harvest losses, and reinvest capital efficiently, keeping clients fully invested while improving after-tax outcomes over time.

A great hedge against a bad entry point

Even if markets pull back after an investment is made, the dual mandate of TME can use that volatility to its advantage: We harvest losses and reinvest the proceeds, helping to convert bad timing into future tax offsets while keeping equity exposure intact. From there, owning the underlying index names means we can continue to take advantage of the natural ups and downs within the market – not just at the moment of entry, but throughout the life of the portfolio.

Take advantage of volatility

The market rarely moves directly up and to the right. Even when the index is up, many of the individual constituents within it post negative returns, as shown in the nearby chart. The S&P 500 posted strong results over the course of 2025 in aggregate; however, two-thirds of S&P 500 companies lagged the overall index and 40% of companies posted a negative return for the year!

This dispersion, along with normal market pullbacks, creates a steady stream of opportunities to harvest losses. In TME, we monitor accounts daily across a variety of metrics to identify when realizing losses may add after tax value. The result is a tax-efficient engine that works quietly in the background all year long, converting volatility into potential tax benefits.

For long term investors, your entry point disappears over time. In fact, you may even do more harm than good while waiting for a dip. Staying invested through different market environments is what allows TME to keep doing its best work – capturing losses as they arise and turning short term fluctuations into after tax advantages. In this regard, TME is good today as a hedge against a bad entry point and better tomorrow as the strategy provides tax-efficient compounding.