Featured entries from our Journal

Details Are Part of Our Difference

Embracing the Evidence at Anheuser-Busch – Mid 1980s

529 Best Practices

David Booth on How to Choose an Advisor

The One Minute Audio Clip You Need to Hear

Category: Education

Tax-Loss Harvesting: ’Tis Always the Season

Typically, harvests happen seasonally. Strawberries ripen in the spring, corn is eye high by the Fourth of July, those grapes get stomped in the fall, and chestnuts roast on winter fires.

Tax-loss harvesting is different. Those who are familiar with the strategy tend to mistakenly assume that losses are best harvested at year-end, when taxes are top of mind. In reality, tax-loss harvests can happen whenever market conditions and your best interests warrant it.

What is tax-loss harvesting?

When properly applied, tax-loss harvesting is the equivalent of turning your financial lemons into lemonade by converting market downturns (whenever they may occur) into tangible tax savings. A successful tax-loss harvest lowers your tax bill, without substantially altering or impacting your long-term investment outcomes.

How does it work?

If you sell all or part of a position in your taxable account when it is worth less than you paid for it, this generates a realized capital loss. You can use that loss to offset capital gains and other income in the year you realize it, or you can carry it forward into future years. (There are quite a few caveats on how to report losses, gains and other income. A tax professional should be consulted, but that’s the general premise.)

Here’s a three-step summary of the round trip typically involved:

  1. Sell all or part of a position in your portfolio when it is worth less than you paid for it.
  2. Reinvest the proceeds in a similar (not “substantially identical”) position.
  3. Return the proceeds to the original position no sooner than 31 days later (after the IRS’s “wash sale rule” period has passed).

Again, once the dust has settled, our goal is to have generated a substantive capital loss to report on your tax returns, without dramatically altering your market positions during or after the event.

Any catches?

Remember, tax-loss harvests should occur when market conditions allow for them AND when your best interests warrant it. There are several reasons that not every available loss should be harvested. To name a few:

Costs – The potential tax savings may not offset the trading costs involved. Before the harvest, do the math.

Tax planning – A tax-loss harvest can reduce your taxes in the short-term, but may generate higher capital gains taxes later on (by lowering the basis of your holdings). Loss harvests should be managed in concert with your larger tax planning projections.

Asset location – Holdings in your tax-sheltered accounts (such as your IRA) don’t generate taxable gains or realized losses when sold, so they aren’t available to harvest.

It’s never fun to endure market downturns, but they are an inherent part of nearly every investor’s journey toward accumulating new wealth. When they occur, we can sometimes soften the sting by leveraging losses to your advantage. That’s why we keep a year-round eye on our clients’ holdings, so we can be ready to spring into action any time a harvesting opportunity may be ripe for the picking.

Let us know if we can ever answer any questions about this or other tax-planning strategies you may have in mind.

 

What Survivors Know (and So Can You)

Matt and Rick
Rick Hill and Matt Hall | Grand Opening – June 6, 2005

On the eve of the presidential elections, how to survive and make best use of our time here on earth may be even more top of mind than usual. What better time to share a recent piece by Fast Company’s Laura Vanderkam: “Cancer Survivors Share Hard-Won Lessons On Managing Time Well.” Beyond being fascinating in its own rights, the article features our own Matt Hall reflecting on his experience living with leukemia (a subject he also explores more extensively in his book, “Odds On.”)

When Matt was hit with the bad news in 2006 (only about a year after co-founding Hill Investment Group), he found it hard to sustain his usual “Take the Long View” outlook. As Vanderkam’s article relates:

“[Matt] recalls being in his car afterward. His wife was driving. He looked out the window and saw other people in their cars, heads moving to the music. ‘Life goes on, but in my car it felt like life was at a standstill.’”

Fortunately, Matt and his doctors found a treatment that has enabled him to effectively manage his chronic disease during the decade since. If anything, his commitment to long-view living is even stronger, with an intense approach to living every day. (Although those of us who have known Matt for years would debate whether that’s really all that new!)

In summarizing Matt’s and other cancer survivors’ experiences, the article wraps: “For all the different reactions, one theme emerges: Surviving tends to make people think that there is no point wasting time and energy on things that are neither meaningful nor enjoyable.”

As you consider this and future elections, you may want to heed Matt’s and his fellow survivors’ life experiences. Focus on the details you can control in your life. Don’t “fool around with small stuff,” as Matt advises. Hire someone else to mow your lawn. If you have been longing to do something … do it.

 

 

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Here Are A Few of Our Favorite Things (Podcasts)

Members of our team are self-proclaimed bookworms and eternal evidence seekers! We always love to hear recommendations for new books, magazines, articles, interviews, and especially podcasts. Matt Hall has put together a list of some of his favorites. To listen in, just click on any that pique your interest.

Charley Ellis – We love him, his story and the way he speaks. (If you listen to only one podcast on the list. this is the one to choose.)

David Booth – Cofounder of Dimensional, now the sixth largest fund company in the world, we think the story is worth your time.

Cliff Asness – Brilliant communicator.

Larry Swedroe – Author of 15 books and Matt’s mentor from Buckingham.

Michael Mauboussin – We like the way he thinks.

Howard Marks – He has a different approach to investing, but is a great communicator.

Jack Bogle – Sometimes myopic and abrasive, but a living legend.

Burt Malkiel – Similar to Bogle, but also still a legend.

Cliff Asness (again) 

Cliff Asness (one more time) … on hedge funds and equity returns

Featured entries from our Journal

Details Are Part of Our Difference

Embracing the Evidence at Anheuser-Busch – Mid 1980s

529 Best Practices

David Booth on How to Choose an Advisor

The One Minute Audio Clip You Need to Hear

Hill Investment Group