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Do any of you use a Robo-advisor to take of this for you? If so, your experience with it = positive or negative?
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RoadScholar,

re: A robo-advisor (robo-adviser) is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.

No, but use the matrix as a reference with https://www.ellevest.com/

https://www.ellevest.com/personalized_portfolios and place them in my stockcharts.com's scanning tool in looking for the ETF to buy or sell. Just change the FDCIC Cash to Mr. Wonderful from Shark Tank's ETF company OUSA. After finding them, I then go to Freestockcharts.com and review the findings.

Quillnpenn -
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Do any of you use a Robo-advisor to take of this for you?

I am not aware of any robo-advisors that do this. If you know of one, please share it.
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Betterment?
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Wealthfront
Betterment
FutureAdvisor

However, tax loss harvesting is mostly a gimmick that has little real benefit overall.

If you sell something for a (tax) loss and immediately buy it (actually, it's equivalent) back, sure you have an immediately loss. But you also have established a lower basis on the new purchase which means a larger profit that will be taxed in the future. Plus you restart the clock on the LT holding period.

And you've sold a better holding for an inferior holding. Because if the one you switched into was better, *that* is the one you would have owned instead.

I wondered about those two things for a long time, then I came across a couple of web articles that explained the problems in detail. Google it.

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Looking at it in the extreme case, if you could ignore the wash-sale rule:
You buy a stock and watch it. As soon as it shows a loss, you immediately sell it, book the loss, and then re-buy it. Then later on you sell out at your original purchase price.

If it's in the same tax year, all you have done is taken a (tax) loss in May and the (offsetting) profit in November. No benefit. And the loss and profit cancel out, so you have no net benefit.

If it's in different tax years, all you have done is reduced your tax in 2016 and increased in in 2017. The reduction is equal to the increase, so all you've done is moved the tax you pay from one year to a later year. BFD.

Example:
Buy at 50, sell at 40. $10 tax loss.
Immediately rebuy at 40, hold for a while, then sell at 60. $20 tax gain.
The net gain is still only $10. Because when you rebuy after the loss you establish a new lower basis.

It is hard to imagine a scenario where most people would see a significant overall benefit, in terms of actual dollars.
All you are doing is shifting some tax from one year to another. So the only way to gain overall is if there is some sort of arbitrage benefit, like different tax rates in the different years.

And then hope you haven't traded a LT capital loss for a ST capital gain.
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Thanks...

https://www.betterment.com/resources/research/tax-loss-harve...

The Betterment Solution

Summary: TLH+ substantially improves on existing strategies by managing parallel positions within each asset class indefinitely, as tax considerations dictate. It approaches tax-efficiency holistically, optimizing every transaction, including customer activity.

The fundamental advance of Betterment’s TLH+ is that tax-optimal decision making should not be limited to the harvest itself—the algorithm must remain vigilant with respect to every transaction.

An unconditional 30-day switchback, whatever the cost, is plainly suboptimal, and could even leave the investor owing more tax that year—unacceptable for an automated strategy that seeks to lower tax liability. Intelligently managing a bifurcated asset class following the harvest is every bit as crucial to maximizing tax alpha as the harvest itself.

The innovations of TLH+ include:


---------

Lots more at the link.

I understand tax loss harvesting, but their white paper made my head hurt.

Seems legit regardless.
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It is hard to imagine a scenario where most people would see a significant overall benefit, in terms of actual dollars....

All you are doing is shifting some tax from one year to another.


I don't think you are applying the taxes correctly in your analysis. Loss can be applied against ordinary income where as future LTCG are taxed at LTGC. If you are in a higher tax bracket, it makes a lot of financial sense to harvest losses even if that means you pay more in LTCG at some future date - assuming current tax laws.

Even if all the loss does is offset other current LTCGs, Time Value of Money would provide some value on taxes postponed until some future date. That is money in your pocket and not in the IRS' pocket.
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I understand tax loss harvesting, but their white paper made my head hurt.

I read their paper quite some time ago, so don't recall the details. They are trying to sell their idea, so they probably kinda glossed over the downsides of their TLH+. As always, it is a good idea to google "problems with {technique}" instead of reading only the proponents of the technique.


by managing parallel positions within each asset class indefinitely

Yeah....that's the part I didn't get.
Take, say, VOO vs. SPY vs. IVV.
Are these “substantially identical” or not?
If you argue that they are, then the IRS can nail you and call it a wash sale.

If you argue that they are "different enough", then they are *not* identical. Which means that one is better (however you define "better").
Of course, you want to own the best one and not the inferior one(s).
So when you tax-loss-harvest you sell the BEST one (the one that you own) and replace it with an inferior one.

No matter how cleverly you "holistically & intelligently managing a bifurcated asset class" (whatever that means, it sounds like double-talk to me) you end up owning a security that you have deemed to not be the best one. I can't figure out how this makes sense.

Swap back after 30 days? Great, extra trading costs -- commissions and spread & slippage.
Keep it indefinitely? Great plan, holding the worse of the alternatives. What a deal.



Before I believed it, I'd want to see a 10 or 20 year historical backtest, showing when (and WHY) they made the trades and exactly *how* it affected your taxes. 'cause all I recall ever seeing is just vague handwaving, not actual hard data.

IVV inception date was 2000, so you could do a 16 year backtest using IVV and SPY.

In fact, maybe I'll do that if I get bored enough.
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Loss can be applied against ordinary income

Only $3000 per year. And only to the extent that you don't have other losses that eat up some of that $3000. And don't have loss carry-forwards that eat up some of it.

There are plenty of people who are still working through capital loss carry-forwards from losses in 2000/2001, not to mention 2008/2009. So any TLH tax loss doesn't do you any good. It is really only a help if it offsets a NET (after your loss carry-forwards) investment capital gain in the same tax year.

====================

Even if all the loss does is offset other current LTCGs, Time Value of Money would provide some value on taxes postponed until some future date.

Yes. But how much money are we talking about, how much is this Time Value of Money benefit in actual dollars? And how does it compare with the costs of doing the TLH - the cost of doing the trades, commissions, bid/ask spread, slippage, etc.?
It does no good to save $100 in tax if the trading cost is $100.

Just taking a quick look, SPY spread is 2 cents, VOO is 4 cents, and they are close to the same price, so take the all-in spread to be 3 cents. $100,000 is about 500 shares, so the loss due to the spread is $15. Two commissions, another $10-$20. SEC fee is $2. So the total cost of the swap is about $35.
Multiply by 2 for the swap back after 30 days = $70.

Like I said, I'd really like to see a backtest with hard data.
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Take, say, VOO vs. SPY vs. IVV.
Are these “substantially identical” or not?
If you argue that they are, then the IRS can nail you and call it a wash sale.

If you argue that they are "different enough", then they are *not* identical.


That raises an interesting point: If those investments are more-or-less equal *long term*, then shouldn't the one that just went down be likely to go up more to catch up with the rest? If the answer is "no," then they aren't equal enough to keep from screwing up the asset allocation when someone follows the tax loss harvesting scheme.

I'd rather have the investment that goes up more than one that goes up less but has some tax losses to "harvest."
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Let's compare ...

A list is charts is not helpful to the discussion.

Nobody here is so dumb that they don't know how to pull up a chart.

Do you have a point to make? Anything to contribute to the discussion?
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If you sell something for a (tax) loss and immediately buy it (actually, it's equivalent) back, sure you have an immediately loss. But you also have established a lower basis on the new purchase which means a larger profit that will be taxed in the future.

I was thinking about that assertion some more. I came up with two ways that the increased basis doesn't hurt you:

1. If you donate appreciated assets to charity, you get to deduct the current value (and not pay taxes) and the charity gets to receive the appreciated asset (and not owe taxes on the difference between its donated worth and the original basis). Assets have to be owned at least a year.

2. If you die, your heirs get the appreciated assets with the basis stepped up.

So, there are at least two ways that the tax loss harvesting can help you now without hurting you (or at least your heirs) later.

I'm not saying anybody should do it, just pointing out how something could work.
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Both Wealthfront and Betterment recently added tracking of external accounts.

I expect they will proceed to use that information to implement automated wash sale avoidance.
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