Inevitably, sometimes investments will lose money, at least over the short term. The silver lining to this downside is that investments trading at a loss can be sold and the loss used to offset positive capital gains income, now or in the future, thus reducing your annual tax bills. We continually monitor our clients’ portfolios for tax-loss harvest opportunities; whenever any security is trading at a significant loss, we will sell it and reinvest the proceeds into a different security in the same asset class. This way, we maintain your portfolio’s overall risk and return profile, while harvesting tax-losses in a manner consistent with IRS rules on this.
Whenever possible, we’ll even stack the deck in your favor, by placing more volatile, and less correlated assets into your taxable account (consistent with your risk tolerance), increasing the likelihood that we’ll be able to take advantage of tax-loss harvesting for you. By practicing a consistent tax-loss harvesting strategy, you can reduce or even eliminate capital gains tax payments for years on end, potentially increasing after-tax returns by as much as 0.80% annually over an investment lifetime for high-income investors.