Trade Note: Tax Loss Harvesting

Taking some "free returns" in my Real Money Portfolio

By Travis Johnson, Stock Gumshoe, April 21, 2020

I share Trade Note updates with you, my favorite people, whenever I do any meaningful buying or selling in between Friday Files, but they’re usually shorter notes in the comment threads — today I’ve chugged through a string of relatively small trades that I need to update you on, and I’ve got a few minutes, so I’ll make this a separate article posting and share some additional detail.

Tax loss harvesting is something you can do anytime during the year, so when there are investments that I’m showing a loss on, and where I can either be pretty sure they are not going to quickly bounce back or I can get similar exposure through a different investment, taking a tax loss is something I’ve got some inclination to do during ugly times. It’s a guaranteed return once tax time comes around, even though it does force a decision that’s not entirely about the fundamentals of the company in question (which I tend to resist), so it’s worth considering.

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And that’s what I did today, with markets again looking fairly weak overall — I indulged my inner desire to “do something” by making a few pair trades that will generate an immediate return, albeit a pretty small one, and with very little real risk of lost future gains. Sounds magical, right?

Well, not really — but it can help.

I went through my portfolio of positions that are held in taxable accounts to see which I could take a meaningful loss on while still maintaining exposure to the possible upside of that stock or sector… or maybe even “increasing the quality” of a position if everything in a sector is getting equally clobbered. Most of my equity holdings are in tax deferred or tax shelter accounts of one type or another, like 401(k)s and IRAs, and most are profitable so there’s obviously no way to “harvest losses” for those positions, but I did end up with a few candidates.

In total, this tax loss harvesting impacted a little less than 2% of my equity portfolio, and generated a “benefit” that will help me at tax time. That benefit offsets some of the large taxable gains I’ve taken so far this year, and I’m in a pretty high tax bracket, so every little bit helps. Plus, it keeps me busy without doing anything big or particularly stupid ...

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