Strategy & FAQ
How to Rebalance Your Portfolio
A portfolio built five years ago with a 60% stock and 40% bond split can drift to roughly 72% stock after a strong run in equities. That quiet shift...
Tax-Loss Harvesting Made Simple
You bought a broad stock fund at $40 a share, and it now sits near $31. Your balance shows a paper loss of roughly $900 on that holding. Rather than just waiting for it to recover, you may be able to use that loss to offset other investment gains and lower this year's tax bill by a few hundred dollars, depending on your bracket.
Tax-loss harvesting is the practice of selling an investment that has dropped below what you paid, then using that loss to offset gains elsewhere. The sold amount is not gone forever. You put the cash back to work in something similar so your market exposure stays roughly the same.
The basic offset logic
The tax code lets capital losses cancel capital gains first, and if losses exceed gains, a portion of the leftover can offset ordinary income, often up to about $3,000 in a given year with the rest carried forward. A person with $2,000 in gains and $5,000 in harvested losses might erase the gain entirely and still have $3,000 to chip away at taxable income, carrying the remaining $0 to future years. It is a quiet way to keep more of what you earned without changing your investing plan.
Harvesting by hand versus letting software do it
You can review your accounts near year-end, flag holdings showing a loss, and place the trades yourself. This costs nothing beyond your time and gives you full control over which lots you sell. Or you can use a service that scans daily and alerts you or auto-trades when a loss appears. The manual route is fine for a simple portfolio checked a couple of times a year; the automated route helps someone with many holdings who would otherwise forget. The trade-off is that automation can generate more frequent small trades, which some people find annoying even if the tax math helps.
The wash-sale trap
This is the rule that trips up almost everyone at least once. If you sell a holding at a loss and buy the same or a nearly identical one within about 30 days before or after, the IRS disallows the loss. People trigger it by repurchasing the identical fund the next day, or by owning the same fund in a different account without realizing the clock applies across all accounts. To stay clean, wait the full 30-day window, or buy a different but similar fund so your allocation barely shifts. Keep a simple note of the sale date and the planned re-buy date so the window does not sneak past you.
Watch the fine print on your bracket
Harvesting only helps if you actually owe tax on gains or have income to offset. In a year with no gains and losses already capped, extra harvesting just builds carryforwards you may not need soon. Also remember that a harvested loss lowers your cost basis in the replacement, which can mean a larger gain later. The benefit is real but often spread over time, not a windfall in the current April.
Run a quick harvest this month
- List every holding with a current value below what you paid, noting the approximate loss per account.
- Sell the loss position and, after the 30-day window, replace it with a similar fund to keep your mix intact.
- Record the loss on your tax worksheet so it offsets gains or up to the allowed income amount this year.
Keep it boring on purpose
Tax-loss harvesting is a tidy edge, not a reason to churn your whole portfolio. The investors who benefit most treat it as a year-end chore, not a daily game. Sell the clear losers, respect the 30-day rule, and keep your long-term allocation steady. Done that way, it quietly trims a bill you were going to pay anyway, with little drama and no need to predict the market's next move.
