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Did you wait until December to Tax-Loss Harvest?

December 7, 2012 - 0 comments

I’m always amazed at the number of investors (and advisors) who ignore tax-loss harvesting opportunities throughout the year, choosing to defer action until December.  By doing so, many investors would have missed out on the market downturn in mid-2012.  Examining their taxable accounts on a monthly or even quarterly basis could reveal opportunities that may no longer exist at year-end.

For example, suppose an investor purchased $100,000 of the iShares S&P/TSX Capped Composite Index Fund (XIC) on February 29, 2012 in their taxable account, and decided to check monthly for tax-loss harvesting opportunities.  By following Larry Swedroe’s rule of thumb, they decide to sell XIC and replace it with a similar but not identical security if the value of XIC drops below $95,000.

As we can see in the graph below, the dark blue line dips below the grey line (indicating a tax-loss harvesting opportunity) during the middle of 2012.  By checking their account monthly, they would have immediately noticed the tax-loss harvesting opportunities and taken action.  Had they waited until December, the losses would no longer exist.


Although I can’t predict how the rest of December 2012 will unfold, I doubt that most investors are hoping for a downturn so that they can harvest the losses.  As a new year’s resolution, get in the habit of checking for losses throughout the year, so you won’t be beating yourself up at tax-time.

By: Justin Bender with 0 comments.
Filed under: Strategy, Taxes
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