In a market as volatile as the one we’re experiencing now, it’s easy to focus on the short-term discomfort of fluctuating portfolio values. But volatility isn’t just something to endure—it also presents strategic opportunities. Tax loss harvesting is one of the most effective tools we use in these environments. At its core, this strategy allows us to turn market setbacks into long-term benefits—essentially, to make lemonade from the market’s lemons.
What Is Tax Loss Harvesting?
Tax loss harvesting is the process of selling an investment that has experienced a loss and then replacing it with a similar, but not “substantially identical”, investment. This allows us to realize a loss for tax purposes while keeping the portfolio aligned with its investment goals.
These realized losses can be used to offset realized capital gains in your portfolio, thereby reducing your taxable income. If your losses exceed your gains in a given year, you can apply up to $3,000 of those losses to offset ordinary income. Any remaining losses can be carried forward indefinitely to reduce future taxes.
Why It Matters Now
Markets have been anything but stable lately. One key driver behind the current volatility is the uncertainty surrounding global trade policies, with shifting tariffs, cross-border negotiations, and unpredictable regulatory changes continuing to ripple through the financial system. These trade dynamics are creating sudden pullbacks and price dislocations in sectors across the board.
This is where our active oversight comes into play. We monitor portfolios continuously, looking for positions where it makes sense to harvest a loss and reinvest in a way that maintains proper exposure to the market. It’s one way we ensure your portfolio stays tax-efficient—even in rocky times.
In volatile environments, swings in asset prices often create more frequent harvesting opportunities. A stock or ETF might be down one month and up the next. By tactically capturing losses when they occur and reinvesting thoughtfully, we help ensure your portfolio stays on track while maximizing the tax advantages.
A Closer Look at the Process
Suppose you hold a diversified mutual fund that’s currently down 12% since purchase. If we determine it’s a good candidate for harvesting, we might sell it to realize the loss and immediately purchase a similar ETF that tracks the same or a closely related index. This keeps your investment strategy consistent while capturing the tax benefit of the loss.
It’s important to navigate the wash sale rule—a regulation that disallows a loss deduction if you repurchase the same or a substantially identical security within 30 days before or after the sale. That’s why the replacement investment must be thoughtfully chosen to maintain your exposure without violating the rule.
Long-Term Value from Short-Term Setbacks
Tax loss harvesting isn’t about market timing or chasing short-term gains. It’s about smart, consistent portfolio management with a long-term mindset. The losses we harvest today can serve you for years to come, helping offset gains as your portfolio grows and reducing your tax liability along the way.
Over time, these harvested losses can add up to significant tax savings. When paired with strategic rebalancing and thoughtful asset location, tax loss harvesting becomes part of a broader, disciplined approach to wealth management.
We’re On Watch
In times like these, it’s especially important to have a team that protects your investments and actively seeks opportunities to strengthen your financial position. Tax loss harvesting is just one way we do that. We also constantly analyze portfolios, monitor market movements, and look for ways to enhance after-tax returns.
While no one enjoys seeing investments temporarily dip, we’re using every tool to turn market challenges into advantages. Volatility may be a given, but brilliant strategy is a choice—and we’re making that choice every day on your behalf.
If you have questions or would like to discuss how tax loss harvesting fits into your specific financial picture, don’t hesitate to reach out. We are always here to help.