Maximizing opportunities to Tax Loss Harvest?

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redstar
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Maximizing opportunities to Tax Loss Harvest?

Post by redstar » Sat Jul 15, 2017 1:04 pm

I have a lot of (realized) capital gains this year (yay!), but with a correspondingly high tax bill ( :( ). I am also currently not invested and would like to start. Assuming a given asset allocation, is there a good strategy for maximizing opportunities to Tax Loss Harvest?

I know that normally TLH isn't as useful without gains to offset, but I'm in a situation where that is the case. I was thinking of using something like Wealthfront or Betterment, as their automatic systems might find more than I can on my own. Wealthfront's direct indexing feature seems like it would be better than just owning a Target Date fund or similar.

(Edited to distinguish that they are already realized gains).
Last edited by redstar on Sat Jul 15, 2017 1:37 pm, edited 1 time in total.

jbolden1517
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by jbolden1517 » Sat Jul 15, 2017 1:30 pm

First off if you have capital gains you have investments. You can easily create pairs of investments that are together market neutral but individually quite volatile to offset gains with losses. You are mentioning robo advisors I know https://www.hedgeable.com/ offers a service where they will take your current investment and create pairs of investments like this to gradually move you towards a reasonable desired portfolio.

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BolderBoy
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by BolderBoy » Sat Jul 15, 2017 1:49 pm

redstar wrote:Assuming a given asset allocation, is there a good strategy for maximizing opportunities to Tax Loss Harvest?
Short of looking at your holdings every day and exchanging anything that has a loss into a non-identical fund, I can't imagine how you can do this. Clearly one doesn't want to intentionally buy losers just to harvest a loss.

There are however, cleverer folks on here than I.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

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triceratop
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by triceratop » Sat Jul 15, 2017 4:15 pm

You can maximize your TLH by TLHing on the lowest value of the year following your investment. Some people use RBDs to determine this. In general asset classes get battered pretty badly and it is clear when a TLH opportunity is present.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

thangngo
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by thangngo » Sat Jul 15, 2017 4:28 pm

redstar wrote:I have a lot of (realized) capital gains this year (yay!), but with a correspondingly high tax bill ( :( ). I am also currently not invested and would like to start. Assuming a given asset allocation, is there a good strategy for maximizing opportunities to Tax Loss Harvest?

I know that normally TLH isn't as useful without gains to offset, but I'm in a situation where that is the case. I was thinking of using something like Wealthfront or Betterment, as their automatic systems might find more than I can on my own. Wealthfront's direct indexing feature seems like it would be better than just owning a Target Date fund or similar.

(Edited to distinguish that they are already realized gains).
Betterment & Wealthfront can TLH for you. But if the market keeps rising like the first half of this year, there won't be many opportunity (if any) to TLH. You'll end up paying 0.25% fee with little capital lost to show.

TLH might not be the right way to lower your tax bill this year. You might look at other options to defer your tax:
- maximize your tax deferred 401k contribution
- consider to start-up a business, incur capital expenditure, take bonus depreciation, etc. in order to take advantage of loss on Schedule C. It's a lot of work, especially if you have a full-time job

if you exhaust all options, I guess you'll have to suck it up and pay the tax man.

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randomizer
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by randomizer » Sat Jul 15, 2017 5:14 pm

I haven't seen a TLH opportunity for a while. But I am sure it will come. Patience.

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celia
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by celia » Sat Jul 15, 2017 5:20 pm

Why don't you invest to get big gains for the rest of the year and use those gains to pay the taxes?

Then if the worst happens....... you will have loses instead!

Wouldn't this make you happy either way?

redstar
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by redstar » Sat Jul 15, 2017 5:38 pm

celia wrote:Why don't you invest to get big gains for the rest of the year and use those gains to pay the taxes?

Then if the worst happens....... you will have loses instead!

Wouldn't this make you happy either way?
Yup, that's the plan! I swear I'm not trying to intentionally lose money.

The strategies I was looking for are mostly in how to invest, both in provider choice and in type of investments. For example, Betterment and Wealthfront may catch TLH opportunities that I can't. Additionally, it seems like it is easier to TLH when you own more granular shares than mutual funds (which is why I mentioned Wealthfront's Direct Indexing).

aristotelian
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by aristotelian » Sat Jul 15, 2017 5:45 pm

It is hard to do TLH when following a true Boglehead portfolio and the market is high. In the future, you could set up a portion of your portfolio in individual stocks or sector funds. You would need sufficient funds to have acceptable diversification and pay close attention to day-to-day fluctuations.

More information about your portfolio would be helpful if you want specific information.

redstar
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by redstar » Sat Jul 15, 2017 8:15 pm

aristotelian wrote:More information about your portfolio would be helpful if you want specific information.
I only have cash at the moment, so I'm looking to create a portfolio. I am intending to invest around $150,000 in a taxable account, with my overall asset allocation being around 90% stocks, 10% bonds.

aristotelian
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by aristotelian » Sat Jul 15, 2017 8:22 pm

redstar wrote:
aristotelian wrote:More information about your portfolio would be helpful if you want specific information.
I only have cash at the moment, so I'm looking to create a portfolio. I am intending to invest around $150,000 in a taxable account, with my overall asset allocation being around 90% stocks, 10% bonds.
How would you feel about putting that $150K in an assortment of sector funds and S&P stocks? Unless the market tanks, that is the only way you will get enough opportunities to do any kind of meaningful tax loss harvesting.

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whodidntante
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by whodidntante » Sun Jul 16, 2017 12:46 am

You should be more concerned with your after tax returns than with minimizing taxes. In the future avoid realizing capital gains to raise cash, when possible.

redstar
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by redstar » Sun Jul 16, 2017 2:04 pm

aristotelian wrote:
redstar wrote:
aristotelian wrote:More information about your portfolio would be helpful if you want specific information.
I only have cash at the moment, so I'm looking to create a portfolio. I am intending to invest around $150,000 in a taxable account, with my overall asset allocation being around 90% stocks, 10% bonds.
How would you feel about putting that $150K in an assortment of sector funds and S&P stocks? Unless the market tanks, that is the only way you will get enough opportunities to do any kind of meaningful tax loss harvesting.
I like this idea. I suppose I could approximate a total market fund by weighting each sector according to market cap. This will likely have a slightly higher expense ratio, but it could theoretically be worth it.
whodidntante wrote:You should be more concerned with your after tax returns than with minimizing taxes. In the future avoid realizing capital gains to raise cash, when possible.
Yep.

MotoTrojan
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Re: Maximizing opportunities to Tax Loss Harvest?

Post by MotoTrojan » Sun Jul 16, 2017 3:53 pm

I don't have interest with the strategy personally, but if you want to play the volatility game to harvest losses, I'd go Robo.

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