Many investors reach a point where they want to change their investment strategy.
You might:
- want more income
- prefer a sustainable approach
- be concerned about inflation
- Looking to de-risk in a volatile market
or simply want a portfolio that better aligns with your goals
At Stockspot, this often means switching between portfolios, such as moving from the core Topaz portfolio to a Sustainable, Income or Inflation strategy.
But before making a change, it’s important to understand one key factor:
Switching investment strategies can trigger tax consequences.
What happens when you switch investment portfolios?
When you change your investment strategy, you’re not just updating a label on your portfolio.
In most cases, it involves:
- selling some or all of your existing ETFs
- buying new ETFs aligned with the new strategy
This is where tax comes into play.
Selling investments can trigger a capital gains tax (CGT) event, depending on whether those investments have increased in value.
Understanding capital gains tax when changing investment assets
In Australia, capital gains tax applies when you sell an investment for more than you paid for it.
This means:
- If your ETF has gone up in value, you may realise a capital gain
- If it has gone down, you may realise a capital loss
When switching strategies, these gains or losses are crystallised at the time of sale.
How does this impact Stockspot portfolios?
All Stockspot portfolios are built using ETFs. While portfolios may have similar overall asset allocations, they often use different ETFs to achieve different objectives.
This means that when you switch portfolios, you’re not just changing strategy, you’re typically:
- selling some of your existing ETFs, and
- buying a new set of ETFs aligned to your new portfolio
Because of this, switching portfolios can trigger a capital gains tax event.
Using Topaz portfolios as an example
Switching between the Topaz Model, Income or Inflation portfolios can highlight how this works in practice.
While they share a similar high-growth structure, each portfolio includes different ETFs depending on its focus.
Example: Switching from a core portfolio to a Sustainable portfolio.
A core Topaz portfolio may include broad market ETFs such as:
A Sustainable portfolio replaces these with ESG-focused ETFs like:
When switching:
- The original ETFs (e.g. VAS, IOO, IEM) are sold
- The new ETFs (e.g. FAIR, ETHI, ESGI) are purchased
If the original ETFs have increased in value, this will typically trigger a capital gain.
Example: Switching to an Income-focused portfolio
Income-focused portfolios use ETFs designed to generate higher distributions, such as:
Switching will involve:
- Selling growth-oriented ETFs
- Buying income-oriented ETFs
Any gains realised from selling existing investments may be taxable.
Example: Switching to an Inflation-focused portfolio
Inflation-focused portfolios increase exposure to “hard assets”, including:
Switching will involve:
- Reducing traditional equity exposure
- Increasing allocation to commodity-related assets
This reallocation can trigger CGT depending on the performance of the assets being sold.
Does this mean you shouldn’t switch investment portfolios?
Not necessarily.
Tax is an important consideration, but it shouldn’t be the only one.
Switching portfolios may still be appropriate if:
- your financial goals have changed
- your investment horizon has shifted
- your preferences (e.g. income, sustainability, inflation protection) have evolved
The key is to balance any tax impact with your long-term investment strategy.
Key considerations before switching strategies
Before making a change, it’s worth considering:
1. Unrealised gains
If your portfolio has grown significantly, switching may trigger a larger tax event.
2. Holding period
Investments held longer than 12 months may benefit from the CGT discount.
3. Portfolio alignment
Staying in a strategy that no longer suits your goals can also have long-term costs.
4. Timing and gradual changes
In some cases, switching gradually may help manage tax outcomes.
A long-term perspective on switching
For long-term investors, the focus should remain on:
- aligning investments with your goals and objectives
- maintaining a diversified portfolio
Rebalance when necessary - staying invested even during market volatility
While tax events can occur when switching, they should be viewed in the context of your broader financial strategy, not as the sole deciding factor.
Switching investment strategies isn’t just a preference change, it’s an investment decision with implications.
Understanding this helps you make more informed decisions about when, and whether to switch.
For many investors, the right strategy is the one you can stick with over the long term. If you’re not sure about what a change could mean for you, speak with an adviser in our team.
Disclaimer: The content of this blog is not intended to represent or be a substitute for specific taxation or legal advice and should not be relied on as such. Any taxation, legal and other matters referred to on this blog are based on Stockspot’s interpretation of existing laws and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
