My tax loss harvesting will kick in as soon as we get 30 days past EOY dividend/CG reinvestments. I've been thinking of setting a policy for the minimum loss, maybe 10 or 15%, before I will TLH. Staying in the market is a priority, so will buy similar but not same funds in IRAs. I would appreciate opinions on how big a loss needs to be for TLH to be worth the trouble, either in % or $$ terms. And also whether to set as a % or in $$ terms.
Lar
Minimum Loss for Tax Loss Harvesting
Re: Minimum Loss for Tax Loss Harvesting
Mine minimum is -$2,000. But even then, I don't always execute because I'll wait for more, can't get to a computer to make the exchange, etc.
- House Blend
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Re: Minimum Loss for Tax Loss Harvesting
I think it should depend on whether you already have substantial carryover losses.
If you have none, and have never tried to TLH, I think a $10 loss would be enough to make it worthwhile. The experience of seeing how it works and gets reported on tax forms is valuable.
And if you don't have $3000 accumulated, I think a substantial fraction of that might be worth it. Maybe $500 or $1000.
But if you have $100K in carryovers, I could see being more relaxed about it, and setting some percentage threshold. In that situation I don't think I would bother to sell $200K just to harvest a loss of $1K.
If you have none, and have never tried to TLH, I think a $10 loss would be enough to make it worthwhile. The experience of seeing how it works and gets reported on tax forms is valuable.
And if you don't have $3000 accumulated, I think a substantial fraction of that might be worth it. Maybe $500 or $1000.
But if you have $100K in carryovers, I could see being more relaxed about it, and setting some percentage threshold. In that situation I don't think I would bother to sell $200K just to harvest a loss of $1K.
Re: Minimum Loss for Tax Loss Harvesting
I'm a policy setting type of person, so decided upon 10% or a minimum of $5,000. I don't think there's much consensus about a rule of thumb for this. I try to stay hands-off the portfolio, prefer to automate most purchases, so I'm only trying for big hits. If it got to be the end of the year and I hadn't had any TLHs, I'd lower the standard.larmewar wrote: I've been thinking of setting a policy for the minimum loss, maybe 10 or 15%, before I will TLH.
Re: Minimum Loss for Tax Loss Harvesting
I put in the Tax-loss Harvesting for Dummies algorithm a couple of criteria: $500 and/or 3%, but in reality there is no hard-and-fast rule.
I will state that early in the year, I have a much higher loss tolerance before I will TLH, while after Thanksgiving I have a much lower loss level that I will TLH. I like to start each calendar year with virtually no losses and all my portfolio positions in the black with no red showing.
I have found that a better criteria is not the amount of the loss, but instead whether I think markets will change momentum or not and stop going down. As many faithful readers of Bogleheads.org know, I like to tax-loss harvest on a bona fide so-called Really Bad Day in the market because I think that is probably a capitulation day and folks who have panicked and sold are now out of the market leaving only buyers.
Another way to think about this: What is the BEST day of the year to do any tax-loss harvesting? I think it is the day that whatever asset class one is selling is at its lowest price point of the year. That way, one can buy replacement investment at the lowest price of the year plus one only need to tax-loss harvest that asset class once a year. I suspect that if you KNEW it was the lowest price of the year, that you would do TLHing even if the losses were relatively small.
Any loss that would go away with one day's market action is probably not worth tax-loss harvesting as it is too small. A persistent red number in your brokerage account is reason to tax-loss harvest.
There are other considerations as well, such as rebalancing opportunities, transaction costs, improving portfolio tax-efficiency, and so on. So I don't think there is anything specific that one needs to create as a TLH trigger.
I do like what House Blend wrote. Try it and see if your personality fits what you are doing.
I will state that early in the year, I have a much higher loss tolerance before I will TLH, while after Thanksgiving I have a much lower loss level that I will TLH. I like to start each calendar year with virtually no losses and all my portfolio positions in the black with no red showing.
I have found that a better criteria is not the amount of the loss, but instead whether I think markets will change momentum or not and stop going down. As many faithful readers of Bogleheads.org know, I like to tax-loss harvest on a bona fide so-called Really Bad Day in the market because I think that is probably a capitulation day and folks who have panicked and sold are now out of the market leaving only buyers.
Another way to think about this: What is the BEST day of the year to do any tax-loss harvesting? I think it is the day that whatever asset class one is selling is at its lowest price point of the year. That way, one can buy replacement investment at the lowest price of the year plus one only need to tax-loss harvest that asset class once a year. I suspect that if you KNEW it was the lowest price of the year, that you would do TLHing even if the losses were relatively small.
Any loss that would go away with one day's market action is probably not worth tax-loss harvesting as it is too small. A persistent red number in your brokerage account is reason to tax-loss harvest.
There are other considerations as well, such as rebalancing opportunities, transaction costs, improving portfolio tax-efficiency, and so on. So I don't think there is anything specific that one needs to create as a TLH trigger.
I do like what House Blend wrote. Try it and see if your personality fits what you are doing.