TLH question

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Mode32
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TLH question

Post by Mode32 »

Bogleheads,

I have ZERO experience TLHing, but want to utilize it if the opportunity presents itself. I have VTSAX in my taxable that I have been contributing to monthly.

1. When a dip in the market occurs, how do you TLH on the same day if you won't know which lots of VTSAX had losses (and how much losses) until after the market closes?

2. And after the market closes and you exchange the lots of VTSAX showing significant losses with purchase of VFIAX (TLH partner I was thinking of using), wouldn't that exchange occur the end of the following day during which time the price of VTSAX would change (i.e., VTSAX may rebound and you no longer have losses)?

3. My taxable has VTSAX, and I was thinking of a TLH partner in VFIAX; however, most of my retirement accounts are VFIAX and/or S&P500 index funds. If I TLH VTSAX with VFIAX, and if future TLH opportunities arise, I may want to TLH VFIAX and VTSAX. Any tips or recs of maybe a better TLH partner for VTSAX?

I am probably missing some major concept here based on these questions. I have already read the TLH wiki-links that are usually sited and remain confused. Any clarity and advice would be much appreciated.

Thanks in advance. Stay safe.
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happenstance
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Re: TLH question

Post by happenstance »

1. You can look at VTI’s intraday movement to see how VTSAX will likely end. But really the best thing to do is TLH lots that have deeper losses (my rule of thumb is harvest losses >=$500) so that you don’t have to worry about small losses that could turn into small gains. TLHing single-day dips is easier with ETFs.

2. If you use Vanguard’s “Exchange Funds” option, that is atomic: you sell one fund and buy the other in a single transaction on one day. At other brokers or with other fund families, this may not be an option and you have to perform two transactions: sell then buy, which does occur on two separate days.

3. VFIAX and VTSAX are good pairs. You do need to watch out for wash sales in your retirement accounts that use VFIAX.
kaneohe
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Re: TLH question

Post by kaneohe »

Mode32 wrote: Mon Sep 21, 2020 10:50 am Bogleheads,

I have ZERO experience TLHing, but want to utilize it if the opportunity presents itself. I have VTSAX in my taxable that I have been contributing to monthly.

1. When a dip in the market occurs, how do you TLH on the same day if you won't know which lots of VTSAX had losses (and how much losses) until after the market closes?

2. And after the market closes and you exchange the lots of VTSAX showing significant losses with purchase of VFIAX (TLH partner I was thinking of using), wouldn't that exchange occur the end of the following day during which time the price of VTSAX would change (i.e., VTSAX may rebound and you no longer have losses)?

......................................................
1)If you TLH major losses and pick those lots, normal market changes won't change things that much.
If you TLH pennies, then yes.

2)Don't know about VG but other places I'm familiar with .......when you exchange within the same fund family the exchange is simultaneous at close of market. If you exchange to a different family of funds, you can have the one day delay. Sometimes the broker will allow you a 90% exchange same day and then you can do the rest next day to account for market changes.
rkhusky
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Re: TLH question

Post by rkhusky »

Mode32 wrote: Mon Sep 21, 2020 10:50 am 3. My taxable has VTSAX, and I was thinking of a TLH partner in VFIAX; however, most of my retirement accounts are VFIAX and/or S&P500 index funds. If I TLH VTSAX with VFIAX, and if future TLH opportunities arise, I may want to TLH VFIAX and VTSAX. Any tips or recs of maybe a better TLH partner for VTSAX?
If your tax-advantaged accounts hold S&P 500 funds, use Large Cap Index as a TLH partner for Total Stock in taxable.
Topic Author
Mode32
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Re: TLH question

Post by Mode32 »

happenstance wrote: Mon Sep 21, 2020 12:17 pm 1. You can look at VTI’s intraday movement to see how VTSAX will likely end. But really the best thing to do is TLH lots that have deeper losses (my rule of thumb is harvest losses >=$500) so that you don’t have to worry about small losses that could turn into small gains. TLHing single-day dips is easier with ETFs.

2. If you use Vanguard’s “Exchange Funds” option, that is atomic: you sell one fund and buy the other in a single transaction on one day. At other brokers or with other fund families, this may not be an option and you have to perform two transactions: sell then buy, which does occur on two separate days.

3. VFIAX and VTSAX are good pairs. You do need to watch out for wash sales in your retirement accounts that use VFIAX.
Great insights and your rule of thumb of harvesting losses >$500 is super helpful. When you say Vanguard's "Exchange Funds" option is atomic, is that meant in a good way?
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Mode32
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Re: TLH question

Post by Mode32 »

rkhusky wrote: Tue Sep 22, 2020 6:47 am
Mode32 wrote: Mon Sep 21, 2020 10:50 am 3. My taxable has VTSAX, and I was thinking of a TLH partner in VFIAX; however, most of my retirement accounts are VFIAX and/or S&P500 index funds. If I TLH VTSAX with VFIAX, and if future TLH opportunities arise, I may want to TLH VFIAX and VTSAX. Any tips or recs of maybe a better TLH partner for VTSAX?
If your tax-advantaged accounts hold S&P 500 funds, use Large Cap Index as a TLH partner for Total Stock in taxable.
As a TLH partner for VTSAX in taxable, I was thinking then either VLCAX (Vanguard Large Cap index, ER .05) vs VIGAX (Vanguard Growth Index, ER .05) instead of VFIAX (given most of our tax-advantaged has VFIAX or S&P 500 equivalents). Other than looking at % turn-over of a fund, are there other parameters to evaluate tax efficiency of an index fund (ie., VLCAX vs. VIGAX) to be placed in a taxable acct?
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happenstance
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Re: TLH question

Post by happenstance »

Mode32 wrote: Tue Sep 22, 2020 10:36 am Great insights and your rule of thumb of harvesting losses >$500 is super helpful. When you say Vanguard's "Exchange Funds" option is atomic, is that meant in a good way?
Yes, sorry for the confusion. “Atomic” in this sense means indivisible/irreducible: the buy and sell are part of the same operation.
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arcticpineapplecorp.
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Re: TLH question

Post by arcticpineapplecorp. »

happenstance wrote: Mon Sep 21, 2020 12:17 pm 3. VFIAX and VTSAX are good pairs. You do need to watch out for wash sales in your retirement accounts that use VFIAX.
IRA yes.
401k? debatable.

if you think wash sales apply to 401k holdings, please verify.

What I see are:
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1.Buy substantially identical stock or securi-ties,
2.Acquire substantially identical stock or se-curities in a fully taxable trade,
3.Acquire a contract or option to buy sub-stantially identical stock or securities, or
4.Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

source: https://www.irs.gov/pub/irs-pdf/p550.pdf page 56
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
rkhusky
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Re: TLH question

Post by rkhusky »

Mode32 wrote: Tue Sep 22, 2020 10:42 am
rkhusky wrote: Tue Sep 22, 2020 6:47 am
Mode32 wrote: Mon Sep 21, 2020 10:50 am 3. My taxable has VTSAX, and I was thinking of a TLH partner in VFIAX; however, most of my retirement accounts are VFIAX and/or S&P500 index funds. If I TLH VTSAX with VFIAX, and if future TLH opportunities arise, I may want to TLH VFIAX and VTSAX. Any tips or recs of maybe a better TLH partner for VTSAX?
If your tax-advantaged accounts hold S&P 500 funds, use Large Cap Index as a TLH partner for Total Stock in taxable.
As a TLH partner for VTSAX in taxable, I was thinking then either VLCAX (Vanguard Large Cap index, ER .05) vs VIGAX (Vanguard Growth Index, ER .05) instead of VFIAX (given most of our tax-advantaged has VFIAX or S&P 500 equivalents). Other than looking at % turn-over of a fund, are there other parameters to evaluate tax efficiency of an index fund (ie., VLCAX vs. VIGAX) to be placed in a taxable acct?
I would only use Vanguard Growth Index if Large Cap Index wasn't available, but it would do the job. Generally, the broader the fund, the more tax efficient.
rkhusky
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Re: TLH question

Post by rkhusky »

arcticpineapplecorp. wrote: Tue Sep 22, 2020 11:16 am What I see are:
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1.Buy substantially identical stock or securi-ties,
2.Acquire substantially identical stock or se-curities in a fully taxable trade,
3.Acquire a contract or option to buy sub-stantially identical stock or securities, or
4.Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

source: https://www.irs.gov/pub/irs-pdf/p550.pdf page 56
I don't see any mention of 401k's being exempt. I also don't see any mention of trusts, for which there are tax court cases specifically ruling wash sales involving trusts. Tax return instructions, while generally very good, are not all-encompassing. Also note that 1. uses "buy", while the wash sale statute uses "acquire". And 4. uses "individual retirement arrangement (IRA)", not the correct "individual retirement account" that is used in the relevant Revenue Ruling. The instruction writers are not infallible.
Last edited by rkhusky on Tue Sep 22, 2020 8:49 pm, edited 1 time in total.
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arcticpineapplecorp.
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Re: TLH question

Post by arcticpineapplecorp. »

rkhusky wrote: Tue Sep 22, 2020 8:41 pm
arcticpineapplecorp. wrote: Tue Sep 22, 2020 11:16 am What I see are:
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1.Buy substantially identical stock or securi-ties,
2.Acquire substantially identical stock or se-curities in a fully taxable trade,
3.Acquire a contract or option to buy sub-stantially identical stock or securities, or
4.Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

source: https://www.irs.gov/pub/irs-pdf/p550.pdf page 56
I don't see any mention of 401k's being exempt. I also don't see any mention of trusts, for which there are tax court cases specifically ruling wash sales involving trusts. Tax return instructions, while generally very good, are not all-encompassing.
right, but until it's been tested in tax court we don't really know if it applies to 401ks or not because it isn't stated as such.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
rkhusky
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Re: TLH question

Post by rkhusky »

arcticpineapplecorp. wrote: Tue Sep 22, 2020 8:48 pm
rkhusky wrote: Tue Sep 22, 2020 8:41 pm
arcticpineapplecorp. wrote: Tue Sep 22, 2020 11:16 am What I see are:
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1.Buy substantially identical stock or securi-ties,
2.Acquire substantially identical stock or se-curities in a fully taxable trade,
3.Acquire a contract or option to buy sub-stantially identical stock or securities, or
4.Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

source: https://www.irs.gov/pub/irs-pdf/p550.pdf page 56
I don't see any mention of 401k's being exempt. I also don't see any mention of trusts, for which there are tax court cases specifically ruling wash sales involving trusts. Tax return instructions, while generally very good, are not all-encompassing.
right, but until it's been tested in tax court we don't really know if it applies to 401ks or not because it isn't stated as such.
It's stated as all-encompassing in the wash sale statute, so the default is that 401k's are included until a tax court rules that they are exempt. No account type has ever been exempted, so there is no basis for saying that 401k's are exempt. There also was a Supreme Court ruling that said that you have to be able to point to a ruling that allows a deduction before taking it, i.e. it has to be specifically allowed. You can't use the fact that it is not specifically addressed to take the deduction.
Topic Author
Mode32
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Re: TLH question

Post by Mode32 »

happenstance wrote: Tue Sep 22, 2020 10:48 am
Mode32 wrote: Tue Sep 22, 2020 10:36 am Great insights and your rule of thumb of harvesting losses >$500 is super helpful. When you say Vanguard's "Exchange Funds" option is atomic, is that meant in a good way?
Yes, sorry for the confusion. “Atomic” in this sense means indivisible/irreducible: the buy and sell are part of the same operation.
Thanks 😊
Topic Author
Mode32
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Re: TLH question

Post by Mode32 »

If I put more money into my taxable (purchase more VTSAX) today or tomorrow, and next week that market goes down, am I still allowed to TLH VTSAX in my taxable acct (even though I recently purchased it)?
mcraepat9
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Re: TLH question

Post by mcraepat9 »

Have you considered just using VLCAX as a TLH partner rather than VFIAX or another S&P 500 fund?
Amateur investors are not cool-headed logicians.
occambogle
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Re: TLH question

Post by occambogle »

happenstance wrote: Mon Sep 21, 2020 12:17 pm (my rule of thumb is harvest losses >=$500)
Just curious... what is the logic behind the >=$500? Just because of hassle or what?
And would you still apply that rule to a new TLH if one already has more than $500 in losses realized in the calendar year?
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happenstance
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Re: TLH question

Post by happenstance »

Mode32 wrote: Wed Sep 23, 2020 9:53 am If I put more money into my taxable (purchase more VTSAX) today or tomorrow, and next week that market goes down, am I still allowed to TLH VTSAX in my taxable acct (even though I recently purchased it)?
Yes, you’re allowed to do that. But if you then re-purchase a “substantially identical” security again within 30 days of selling it, that creates a wash sale. That is also allowed, but you cannot deduct the loss (i.e. no tax loss can be harvested).

One other thing to be aware of is the frequent trading policy.
occambogle wrote: Wed Sep 23, 2020 10:01 am
happenstance wrote: Mon Sep 21, 2020 12:17 pm (my rule of thumb is harvest losses >=$500)
Just curious... what is the logic behind the >=$500? Just because of hassle or what?
And would you still apply that rule to a new TLH if one already has more than $500 in losses realized in the calendar year?
Yes, it’s just to minimize the hassle (record keeping, tax reporting, better uses of time, etc) and transaction costs (I use ETFs in taxable accounts, so there’s the bid/ask spread).

My soft rule is to harvest when a single lot has a $500 loss or greater. I may also harvest lots of the same security that are also around -$500, and some lots with smaller losses if I’m already going to be transacting that holding. I do not cap how much to harvest in a year. This year I’ve realized substantially more than $500… I’m probably going to be carrying over for a few years.
Topic Author
Mode32
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Re: TLH question

Post by Mode32 »

mcraepat9 wrote: Wed Sep 23, 2020 9:59 am Have you considered just using VLCAX as a TLH partner rather than VFIAX or another S&P 500 fund?
+1
Topic Author
Mode32
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Re: TLH question

Post by Mode32 »

happenstance wrote: Wed Sep 23, 2020 10:23 am
Mode32 wrote: Wed Sep 23, 2020 9:53 am If I put more money into my taxable (purchase more VTSAX) today or tomorrow, and next week that market goes down, am I still allowed to TLH VTSAX in my taxable acct (even though I recently purchased it)?
Yes, you’re allowed to do that. But if you then re-purchase a “substantially identical” security again within 30 days of selling it, that creates a wash sale. That is also allowed, but you cannot deduct the loss (i.e. no tax loss can be harvested).

One other thing to be aware of is the frequent trading policy.
Thanks for this and other great advice!
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Mode32
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Re: TLH question

Post by Mode32 »

When TLH, should I consider avoiding TLH in lots that are short-term (meaning, should I only TLH long'term lots)?
livesoft
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Re: TLH question

Post by livesoft »

Mode32 wrote: Wed Sep 23, 2020 2:28 pm When TLH, should I consider avoiding TLH in lots that are short-term (meaning, should I only TLH long'term lots)?
My advice is to TLH short-term losses and do not wait for them to become long term losses. Also consider TLHing in December to clear out all losses in order to start the next year with all black and no read.

In fact, it should be rare to ever have to TLH a long-term loss. If one is diligently tax-loss harvesting losers, then you will catch them beforehand. One will have long-term losers only when a position held for more than a year loses a lot of money AFTER 12 months from the purchase. That's because if it had a loss in the first 11.99 months after the purchase you would have already harvested that short-term loss.

Furthermore, I set the minimum harvestable loss to a lower value than $500 in late December and when a lot is around 11 months old. When loss is younger, say 1 to 5 months old, then a $500 lower limit could be more reasonable. But one really wants to get losing positions out of one's portfolio and avoid loss aversion.

Got it?

Added: For instance, if you bought some small-cap value ETFs last week, say on 9/18, then you would be harvesting your 7% loss TODAY!
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Topic Author
Mode32
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Re: TLH question

Post by Mode32 »

livesoft wrote: Wed Sep 23, 2020 2:33 pm
Mode32 wrote: Wed Sep 23, 2020 2:28 pm When TLH, should I consider avoiding TLH in lots that are short-term (meaning, should I only TLH long'term lots)?
My advice is to TLH short-term losses and do not wait for them to become long term losses. Also consider TLHing in December to clear out all losses in order to start the next year with all black and no read.

In fact, it should be rare to ever have to TLH a long-term loss. If one is diligently tax-loss harvesting losers, then you will catch them beforehand. One will have long-term losers only when a position held for more than a year loses a lot of money AFTER 12 months from the purchase. That's because if it had a loss in the first 11.99 months after the purchase you would have already harvested that short-term loss.

Furthermore, I set the minimum harvestable loss to a lower value than $500 in late December and when a lot is around 11 months old. When loss is younger, say 1 to 5 months old, then a $500 lower limit could be more reasonable. But one really wants to get losing positions out of one's portfolio and avoid loss aversion.

Got it?

Added: For instance, if you bought some small-cap value ETFs last week, say on 9/18, then you would be harvesting your 7% loss TODAY!
I'm with Vanguard, and this is probably a basic question. I selected all the lots with loss (selected "all").
"Total Estimated proceeds"= 4,419.92
"Total Estimated gain/loss"= -130.18

Should I go ahead and TLH w/ partner VLCAX...is it worth it? (would my taxes impacted negatively at all?)
livesoft
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Re: TLH question

Post by livesoft »

Mode32 wrote: Wed Sep 23, 2020 2:50 pm I'm with Vanguard, and this is probably a basic question. I selected all the lots with loss (selected "all").
"Total Estimated proceeds"= 4,419.92
"Total Estimated gain/loss"= -130.18

Should I go ahead and TLH w/ partner VLCAX...is it worth it? (would my taxes impacted negatively at all?)
You could do this for practice, but such a tiny loss would not be something that I would TLH right now. You might though. I don't think your taxes would be impacted negatively at all. There is a quarterly distribution coming up which you should really have no concern about with this amount of dollars.
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