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is tax loss harvesting worth more than a very diverse portfolio?

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  • Avatar FCP 
    Participant
    Status: Physician
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    Joined: 01/26/2016

    If you had a 10 million dollar portfolio in a brokerage/taxable account, and did a 80/20 stock/bond split, which option would be wiser:

     

    Option 1:  50% total us stock market etf (or similar), 30% total international etf (or similar), 20% muni bonds.  tax loss harvesting is done on a monthly basis.

    Option 2:  80% total us stock market etf (or similar), 20% muni bonds.  tax loss harvesting is done on a daily to weekly basis (so, it is possible that more losses can be harvested).

     

     

    The reason I ask this, is because as my portfolio grows, it is getting quite complicated to keep track of which ETF I can tax loss harvest next into (I’ve been harvesting losses on a near daily basis as the market continues to drop), with both my total US stock ETF/fund and international stock ETF/fund, particularly in order to avoid wash sales (I have to continue to keep track of which funds I was in, during the past 30 days, and also make sure I have my proper percentages in each fund, etc).  I figure it would be easier to harvest losses on a daily to weekly basis (when losses occur) if I only had to focus on harvesting losses from one fund/etf rather than multiple.

    One solution I considered is utilizing “option 2” for the first 10 years of my practice as an attending (when time outside of medicine is limited), and “option 1” for after that time period (when time utilized toward managing my portfolio is more financially worthwhile, and I can scale back the hours in my practice, etc)

    Thoughts?

     

    #219098 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3983
    Joined: 01/08/2016

    Way over thinking this.

    I do monthly, at the least.

    Sure little dinks/dunks nice, but TLH matters most when big market declines happen.

    What even are you using for daily partners…..?

    #219104 Reply
    Avatar FamilyFirst 
    Participant
    Status: Student
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    Joined: 05/19/2017

    I think that the possible small benefits of daily or even weekly TLH are overshadowed by the fact that you’ll have to sit down every day and go through the motions of doing that. I also think you’ll kind of run out of acceptable alternative funds that are similar but not the same fund. You wouldn’t want to throw off your stock/bond mix you have for yourself just because you were tax loss harvesting all the time.

    I would say do your rebalancing every 6 months at the same time, and do TLH if the market takes a big hit. It’s ok for investing to be boring.

    #219111 Reply
    Liked by FCP
    Avatar FCP 
    Participant
    Status: Physician
    Posts: 77
    Joined: 01/26/2016

    Way over thinking this.

    I do monthly, at the least.

    Sure little dinks/dunks nice, but TLH matters most when big market declines happen.

    What even are you using for daily partners…..?

    Click to expand…

    Thank you for your response.

     

    So far I’ve been going between different firms’ versions of the total stock market ETF and s&p500 etf, so for example, schwab’s s&p500, then vanguard s&p500, then ishares s&p500, then schwab total stock market, etc.  Next ill be TLH’ing into large cap ETF’s (ie, VV), until I can start over again within a few wks.

    #219138 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
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    Joined: 06/18/2018

    “when time utilized toward managing my portfolio is more financially worthwhile, and I can scale back the hours in my practice”

    One of the many advantages of a low-cost index ETF portfolio is that you don’t need to spend much ‘time utilized toward managing’ your portfolio.

    What sort of returns are you anticipating from your daily TLH? No way that’s worth your time.

    #219143 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
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    Joined: 03/01/2018

    The IRS would probably consider the various brokerage S&P 500 index funds as substantially identical and thus you could be creating wash sales. At a minimum, you should use tax loss harvest partners that don’t track the same index.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #219148 Reply
    Liked by childay
    Avatar FCP 
    Participant
    Status: Physician
    Posts: 77
    Joined: 01/26/2016
    Earnest refinancing bonus

    “when time utilized toward managing my portfolio is more financially worthwhile, and I can scale back the hours in my practice”

    One of the many advantages of a low-cost index ETF portfolio is that you don’t need to spend much ‘time utilized toward managing’ your portfolio.

    What sort of returns are you anticipating from your daily TLH? No way that’s worth your time.

    Click to expand…

    So, I definitely don’t plan on TLH’ing daily.  However, TLH’ing two days in a row is something I have done recently (as the market has continued to drop), so that’s why I mentioned daily to weekly as a frequency.

    After a meeting with my accountant 2 wks ago, he helped me understand the full benefits of TLH’ing.  In the past, I thought that even if you tax loss harvested 500k in one year, that the max you’d be able to save on taxes is 3k/yr for the rest of your life; but he helped me understand that you’d actually be able to use this 500k toward having 500k in tax-free gains in the future.  So, if I am understanding correctly, with each $1000 I tax loss harvest, I should be able to save about $200-250 in future tax (since I am always going to be taxed at the maximum capital gains rate) for each time I take money out of the portfolio in the future.  So…for example, if in 20 years I take out 100k from the portfolio, instead of having a take home amt of 75k after taxes, I’d be able to take home the full 100k.  If I am understanding any of this incorrectly, let me know, but if I am correct in that understanding, then taking 20 seconds to trade between two funds is totally worth the money if each $1000 I TLH leads to $250 extra in my pocket (and I will be TLH’ing much more than $1000 at a time as the portfolio grows…I’ve already TLH’ed a five figure amount in the past week).

    #219149 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
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    Joined: 06/18/2018

    “Schwab’s s&p500, then vanguard s&p500, then ishares s&p500”

    And those are likely wash sales.

    #219153 Reply
    Liked by Peds
    Lordosis Lordosis 
    Participant
    Status: Physician
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    Joined: 02/11/2019

    Sooner or later the market is going to climb back up and hopefully never return to today’s value.  So these 4th, 5th, and 6th choice funds might get stuck in your portfolio “forever”  Do not buy something you would not want to hold long term.

    As the portfolio get bigger there is more to harvest with a 1-2% drop but if I had a 10MM portfolio I probably would not be wasting time looking at market returns everyday in the hope to get a few thousand in deferred taxes.  Just my opinion.

    “Never let your sense of morals prevent you from doing what is right.”

    #219161 Reply
    Avatar Peds 
    Participant
    Status: Physician
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    Joined: 01/08/2016

    You have most definitely created a lot of wash sales…

    #219165 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
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    Joined: 06/12/2017
    The IRS would probably consider the various brokerage S&P 500 index funds as substantially identical and thus you could be creating wash sales. At a minimum, you should use tax loss harvest partners that don’t track the same index.

    Click to expand…

    This is a good point, but easily side-stepped by, for instance using a cap-weighted S&P 500 fund and then holding an equal-weighted S&P 500 fund during TLH.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #219168 Reply
    Faithful Steward Faithful Steward 
    Participant
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    Joined: 06/12/2017
    After a meeting with my accountant 2 wks ago, he helped me understand the full benefits of TLH’ing.

    Click to expand…

    Did your accountant fully explain that, if you make purchases in any other accounts in your name of the same holding you sold in your taxable account for TLH, you are violating the wash-sale rule? If you are really insistent this type of frequent TLH, you need to make sure none of your taxable account holdings are present in any of your other accounts.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #219169 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3983
    Joined: 01/08/2016
    After a meeting with my accountant 2 wks ago, he helped me understand the full benefits of TLH’ing

    Click to expand…

    should have read this first

    https://www.bogleheads.org/wiki/Tax_loss_harvesting

    #219170 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3983
    Joined: 01/08/2016
    After a meeting with my accountant 2 wks ago, he helped me understand the full benefits of TLH’ing. 

    Click to expand…

    Did your accountant fully explain that, if you make purchases in any other accounts in your name of the same holding you sold in your taxable account for TLH, you are violating the wash-sale rule? If you are really insistent this type of frequent TLH, you need to make sure none of your taxable account holdings are present in any of your other accounts.

    Click to expand…

    even better did he explain how much extra hell charge to accurately report all this 😅

    #219177 Reply
    Liked by Lithium
    Avatar FCP 
    Participant
    Status: Physician
    Posts: 77
    Joined: 01/26/2016
    After a meeting with my accountant 2 wks ago, he helped me understand the full benefits of TLH’ing. 

    Click to expand…

    Did your accountant fully explain that, if you make purchases in any other accounts in your name of the same holding you sold in your taxable account for TLH, you are violating the wash-sale rule? If you are really insistent this type of frequent TLH, you need to make sure none of your taxable account holdings are present in any of your other accounts.

    Click to expand…

    even better did he explain how much extra hell charge to accurately report all this

    Click to expand…

    My accountant has charged me fair prices since I’ve worked with him, and he’s done great work.

     

    After a meeting with my accountant 2 wks ago, he helped me understand the full benefits of TLH’ing 

    Click to expand…

    should have read this first

    https://www.bogleheads.org/wiki/Tax_loss_harvesting

    Click to expand…

    I have already read it (and other sources).

     

    You have most definitely created a lot of wash sales…

    Click to expand…

    Based on what I have read so far, there is no evidence that I have created any wash sales with these exchanges; there are definitely small differences between the funds; and there isn’t any case law to reference where we can say either of us would be correct on this.

    #219183 Reply

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