Tag: tax-loss harvesting
“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 familiar with the strategy 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.”
From a 2016 post we did on tax-loss harvesting.
Unlike many advisors and do-it-yourself investors, we are on the lookout for tax-loss harvesting opportunities throughout the year. Many people (if they harvest at all) only harvest losses once per year, usually at the last minute in late December. Not us, not you if you’re a Hill Investment Group client. Remember the market decline in March 2020? If your advisor waited until December to harvest your losses, they were likely wiped away. 2020 is a perfect example of why, at HIG, we are opportunistic when it comes to harvest time.
The big question folks have debated is how much all this work is worth? How do we quantify the benefit to you? The Wall Street Journal caught our attention with Derek Horstmeyer’s report claiming the value to be more than 1%. The estimates go even higher if your tax rate is at the top end. If their estimates are somewhere in the ballpark, harvesting looks like a sound strategy year-round with the potential to show you some real money.
You can read about the study here.
While millions of people frantically check their smartphone notifications about the coronavirus disrupting the stock market, here are a few notifications that catch my attention.
These reminders are reassuring, especially when the 24-hour news cycle tempts us to hit the panic button. Most importantly, they keep me focused on things that I can control. In this case, my investment accounts have been busy taking advantage of the volatility in the stock market by using intelligent portfolio management.
Let’s quickly break down both of these notifications:
The first alert I received was for tax-loss harvesting, which is a nerdy term for converting market downturns (such as the one we’re seeing right now) into tangible tax savings. When properly applied, tax-loss harvesting turns your financial lemons into lemonade. A successful tax-loss harvest lowers your tax bill without substantially altering or impacting your long-term investment outcomes.
The second alert I received was for rebalancing – also known as buying what’s cheap in the market and making sure my overall risk profile, also known as my asset allocation, is on target. This happens automatically—and without additional fees. It’s the investing equivalent of having your GPS re-route your trip to maximize efficiency.
These are the little things that add up over time. In fact, last month we posted a popular article titled “No Tipping on Taxes” which explores how important tax-loss harvesting is to avoid paying unnecessary taxes. No one likes to be surprised by a larger-than-expected tax bill.
In times like these you need to focus on the things you can control (automating your portfolio management) and avoid worrying about the things you can’t control (fear-mongering news alerts). In fact, the smartest financial decision you make could be putting your phone away. If you’re curious about how these simple yet important investment management tools could help you during this period, schedule a short call with us here.