Tax Loss Harvesting

[GymnJuice]

She outlines several approaches to tax-loss harvesting. Doing it manually, using direct indexing, or implementing a long short program.

You can only deduct up to $3,000 of capital losses against ordinary income. But if you have recurring capital gains to offset these can be sheltered with no limits.

Unfortunately, she omitted a discussion of fees which can significantly erode the benefits. From what I've seen Schwab charges 0.40% and there's a fintech platform Frec offering it at 0.09%.

Long short strategies carry the highest fees at 1–2%. These get accessed through a fintech provider or via an SMA/RIA at your broker, which adds a middleman markup. The leveraged long short programs also introduce higher risk when there are market swings which can cause forced deleveraging.

Anyone doing any of this?

(hittable thumbnail, but looks like clickbait. She ain't that good looking in the actual video)

[IroNat]

She's very good looking.

>

Interesting topic.  Thanks for posting.

The potential risks associated with long-short tax-loss harvesting include higher risk from leverage, the complexity of managing short positions, and the possibility of incurring tax liabilities when transitioning back to a long-only portfolio. Additionally, investors may face increased fees that can diminish the overall tax benefits.

More...

https://www.glinepartners.com/post/long-short-tax-loss-harvesting-pros-and-cons

[GymnJuice]

She's very good looking.

>

Interesting topic.  Thanks for posting.

The potential risks associated with long-short tax-loss harvesting include higher risk from leverage, the complexity of managing short positions, and the possibility of incurring tax liabilities when transitioning back to a long-only portfolio. Additionally, investors may face increased fees that can diminish the overall tax benefits.

More...

https://www.glinepartners.com/post/long-short-tax-loss-harvesting-pros-and-cons

The exit strategy is a downside. With both Schwab and Frec long only direct indexing the exit is that you stop paying the fee (0.40%  or 0.09%) but then take full ownership of the hundreds of individual stocks in the portfolio. These holdings start proportional to the target index but without ongoing management the allocation will gradually drift away from a broad market ETF like VTI due to unequal performance across stocks. You could hold the basket indefinitely and ignore it, which is likely what I’d do in that scenario.

Exiting leveraged long short positions is more involved. Because they use margin and short positions unwinding requires addressing leverage and shorts. As I understand it you can initiate a slow, tax aware unwind from leveraged to long only directly in the Frec platform or inject cash to cover shorts and deleverage.

I spoke with an RIA at Schwab, and their suggested exit approach was broadly similar, ending up with the individual stock basket. However, it came with a sales pitch encouraging me to stay. Something that naturally raises suspicions.

[IroNat]

I would think some investment companies would offer funds that use this strategy.
From what I've read some hedge funds already do.
I think BlackRock does.

You'd have to decide if it's worth doing. 
Are you thinking of doing it?

[GymnJuice]

I would think some investment companies would offer funds that use this strategy.
From what I've read some hedge funds already do.
I think BlackRock does.

You'd have to decide if it's worth doing. 
Are you thinking of doing it?

Yes. At a minimum, I’ll go with the long only direct indexing. I am considering one of the leveraged options because I have a capital gains event coming up. That said, trading on leverage makes me uneasy. I’m much more of a 3 fund portfolio guy who just throws money in the market and ignores the swings. Anything more complicated than that doesn’t come naturally to me.