Does anyone employ ETF tax loss selling?

[Olav23]

I was wondering if anyone employs the ETF tax loss selling strategy outlined in the ol' Radical Investing guide, now at:

http://etf.seekingalpha.com/article/15259

It sounds like a great idea during your yearly rebalancing, but you might lose out by having to move into a less appropriate index to avoid the wash-sale rule.

Basically, to summarize, at the end of the year, you look at which ETFs have lost value during the year. Say the S&P500 (SPY) has dropped and you lost $3k. So you sell that for a loss, and purchase the Russell 1k with the proceeds from the sale since it is a fairly similar index. You now have the $3k to use as a rebate against ordinary income I believe.

Just wondering as it sounds like a great idea...

 

[2B]

I would consider it if it happened. I have owned broad based index funds for a number of years so I've got substantial capital gains in my taxable account. I can't imagine anyone having an ETF loss this year unless they had incredibly poor timing in their purchase or bought some industry specific fund which sort of negates the rationale most of us ETFers buy ETFs.

Your same question would apply to mutual funds. I would give you the same answer.

As a philosophical / rhetorical question, my answer is "yes." I'd do it if it happened.

 

[LOL!]

I always do tax loss selling. Back in 2000-2002 I was doing this every December. I sold SPY and bought VTSMX. The next year I sold VTSMX and bought SPY and MDY.

I religiously check on losers at two times: (1) In Nov-Dec for the year-end tax-loss selling and (2) before I have owned the loser more than 1 year, so that I have an opportunity for a short-term loss.

Studies show that selling losers is beneficial. I found it saved about 1/3 of my butt in the 2000-2002 time frame. In essence, I got tax savings on ordinary income at my 28% marginal income tax rate in exchange for paying long term capital gains taxes at the 15% rate in the future.

 

[Gone4Good]

If I had any losers, I'd sell them for tax purposes (assuming I could immediately replace it with something identical and not trigger the "wash" rule.)

Incidentally, one of the benefits of a buy and hold strategy based on broad index funds is that you generally don't have to worry about tax-loss harvesting after the first couple of years (especially when markets are up 16%+, after being up 7%, after being up . . .).

 

[magellan_nh]

I did this a few years ago when the Vanguard international funds were down a ton. Also, that year I was in the max marginal rate, so the loss was very valuable. I was uneasy about the wash sale requirements, but my luck held up and nothing moved during the waiting period.

Of course, I'll be paying the price this year. I sold a bunch of Vanguard European as part of rebalancing. Since I used up the lots with the highest purchase cost, the tax hit will be much bigger now. I guess I should be glad I got to keep the money for a few extra years and I'm only paying 15% on the gains.

Jim

 

[2B]

I guess I should be glad I got to keep the money for a few extra years and I'm only paying 15% on the gains.

This is one of the "damn Bush II and all repubs" tax cuts that the dems are wanting to "right" (ie. increase capital gain tax rates back up to a version of ordinary income rates). That will probably cause a number of us at the very first sign of that happening to sell everything. The difference in tax rates would be massive and we'd see one monster sell off especially since there have been several years of significant gains.

 

[LOL!]

The difference in tax rates would be massive and we'd see one monster sell off especially since there have been several years of significant gains.

I guess if you book your gains, you would turn right around and buy something with the proceeds. How does that affect your thinking about a sell-off?