Smart Takes

We welcome you to our quarterly newsletter, Smart Takes! We appreciate your time and thank you for joining us on this journey. You’ll find that it is filled with educational information and news of interest to top RIAs, Broker-Dealers, and their clients. We want this newsletter to be valuable for you so please, please share your feedback and suggestions to help us improve.

Your privacy is important to us!  We want you to know that we will not sell, rent, trade, lease, or give your contact info to anyone.  Please see below for this quarter’s blog.

Tax Loss Harvesting: How and When to Use This Strategy

By Advisor Partners

Tax Day may be behind us or coming up if you filed an extension, but it’s not too early to begin thinking about how you can best position your portfolios for the upcoming Tax Year.

There are many different strategies for managing taxes in an investment portfolio, however, we find tax-loss harvesting to be most efficient. When a security is trading at a loss, selling it creates a realized tax-loss that can be used to offset a capital-gain realized in the same year. Yet there are three common misunderstandings about tax loss harvesting that are worth examining to help set the record straight.

Most asset managers review portfolios at year-end to find losses for harvesting. In our experience, continuously monitoring for tax opportunities is much better than focusing on it only at year-end. For example, in the first few months of 2018, we’ve seen significant volatility in the stock market, which has created opportunities for loss harvesting. If stock prices recover, those investors who wait for year-end to look for losses will miss out.

At Advisor Partners, we think replacing “exposures” is more efficient than trying to find pair substitutes. In other words, instead of searching for pairs of stocks to trade, we use a risk model to quantify benchmark-relative risk at the portfolio level. For example, if there are several stocks in the portfolio at a loss, it may be possible to sell and replace them with a handful of different stocks that in aggregate leave the portfolio with a similar sector, industry, country, and risk-factor exposures.

Overall portfolio tax management involves much more than just tax loss harvesting. A continuous tax management process optimizes for tax efficiency and risk-related improvements. Contact us to learn more about how we can help your clients achieve their investment goals.