Tax Loss Harvest VEU/VSS/EEM-> VXUS/DLS/VWO

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AZK
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Joined: Tue Dec 07, 2010 9:49 am

Tax Loss Harvest VEU/VSS/EEM-> VXUS/DLS/VWO

Post by AZK »

The events over the last week make it seem like now is a great opportunity to TLH and rebalance the international portion of my portfolio...

I wasn't able to in the past because this is a taxable account and I didn't want to generate any gains...now my losses in VEU/VSS will outweigh my EEM gain...

My portfolio currently is

13% VEU
13% VSS
10% EEM

Too overweight in EEM...

I'm thinking of TLH using VXUS, DLS and VWO.

Unfortunately, I'm not sure if I can trust the morningstar xray tool for VXUS as it's a new fund. I know it' about 1/9 small cap...

I was thinking about rebalancing with a 60/40 split between large/small and a 5% slice of VWO so something like

20% VXUS
10% DLS
5% VWO

Does this seem appropriate if I'd like a 50% large cap approximately for my international portfolio with an overall 5-10% slice of emerging markets... I figure the EM in VXUS is large cap and less than 25%, so a 20% slice would put me right around 10%...I was hoping there would be some small cap emerging market in DLS to help balance that out a little bit...

Thanks.

Edit: Also, at the risk of being accused of market timing, I'm wondering if I should wait a day or 2 to see how low things go so I can harvest more....
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tinscale
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Post by tinscale »

Seems you will need to be prepared to explain to and convince the IRS how and in what ways VEU (Vanguard All-World ex-US ETF) and VXUS (Vanguard Total International), and EEM (iShares Emerging Markets ETF) and VWO (Vanguard Emerging Markets ETF), are not "substantially identical."
phositadc
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Post by phositadc »

tinscale wrote:Seems you will need to be prepared to explain to and convince the IRS how and in what ways VEU (Vanguard All-World ex-US ETF) and VXUS (Vanguard Total International), and EEM (iShares Emerging Markets ETF) and VWO (Vanguard Emerging Markets ETF), are not "substantially identical."
I think with VEU and VXUS you have a pretty good "non-identical" argument because VXUS has small-cap exposure, whereas VEU does not. Therefore, the underlying securities are not substantially identical (arguably, at least).

EEM and VWO might be more difficult. SCHE is another option for TLHing here. SCHE tracks an FTSE index, whereas EEM and VWO both track an MSCI index. Arguably, different index = (at least somewhat) different underlying securities = not substantially identical.
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grabiner
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Post by grabiner »

tinscale wrote:Seems you will need to be prepared to explain to and convince the IRS how and in what ways VEU (Vanguard All-World ex-US ETF) and VXUS (Vanguard Total International), and EEM (iShares Emerging Markets ETF) and VWO (Vanguard Emerging Markets ETF), are not "substantially identical."
EEM and VWO, which track the same index, may be substantially identical, but as long as you have a gain, that doesn't matter. (But if you have a loss on some shares and a gain on others, you will have a wash sale on the shares with a loss; you can't use average cost for ETFs to turn everything into a gain.)
I was hoping there would be some small cap emerging market in DLS to help balance that out a little bit...
DGS is the equivalent ETF for small-cap emerging markets. However, both DLS and DGS are dividend-weighted, so they are not ideal in a taxable account; you may want to use VSS for your small-caps.
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AZK
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Post by AZK »

I have a substantial loss with VSS right now....what would you recommend I TLH into? I was thinking DLS...but I'll have to search for some taxable friendly substitutions...
livesoft
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Post by livesoft »

VSS is composed of SCZ and EWX|DGS.
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AZK
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Post by AZK »

Hmm...I was hoping to be able to simplify instead of having to slice and dice even more....
livesoft
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Post by livesoft »

So compromise. You should also look into SCHC as well.
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grabiner
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Post by grabiner »

AZK wrote:I have a substantial loss with VSS right now....what would you recommend I TLH into? I was thinking DLS...but I'll have to search for some taxable friendly substitutions...
VSS is the international small-cap ETF which includes emerging markets, so if you want to keep them, you have to use two ETFs to pair developed and emerging (GWX/EWX, DLS/DGS, SCHC/EWX). You might just use one fund; SCHC is probably the best single choice.

If you are planning to hold a temporary substitute while tax loss harvesting, then it doesn't matter whether the fund is tax-efficient as long as it doesn't pay any dividends or capital gains while you hold it. (Check the dividend schedule; if a fund does pay a dividend, you have to hold it for 61 days or the dividend becomes non-qualified.)
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