Displaying items by tag: tax loss harvesting

Holly Framsted, ETF director at Capital Group, home of the American Funds, thinks that advisors and tax professionals shouldn’t overlook the role that actively managed fixed-income ETFs can play in tax loss harvesting. Tax loss harvesting is a strategy that involves selling investment securities at a loss to reduce federal capital gains taxes. Framstead notes that typically, investors will turn to the equity markets for tax loss harvesting, but with the bond markets also experiencing losses this year, fixed income should be considered part of the strategy. In an article for Bloomberg Tax, she wrote, “To realize capital losses through tax loss harvesting, investors must not purchase the same or a substantially identical fund or security for 30 days after the sale. During this time, cash raised from the sale of securities can be reinvested in strategies that are different from those that generated the loss.” She believes that the differentiation that active ETF strategies provide relative to other funds “may make them a compelling investment during the wash sale period as a way for investors to maintain exposure to a changing market while still booking losses.”


Finsum:Capital Group’s ETF director recommends incorporating active fixed-income ETFs into a tax loss harvesting strategy to take advantage of the differentiation that they provide.

Category: Bonds: Total Market

Keywords: active etfs, ETFs, fixed income, tax loss harvesting

Published in Bonds: Total Market

Think only a number cruncher can efficiently convert tax losses into assets?

Well, why it might not carry engraved business cards, direct indexing also can turn that trick, according to advisorperspectives.com.

Case in point: with clouds threatening a repeat performance in the portfolios of your clients this year – especially in light of the volatility more than making its presence felt in the financial markets. Sure, with intense inflation, the Ukraine war and supply chain headaches putting a dent in corporate profits, the Fed’s stoking rates at a seemingly breakneck pace. Yeah; yowser. That said, however, the market’s volatility yields an idyllic chance to not only tax loss harvest but also showcase how direct indexing – with room to spare, most effectively experiences the reverberations of tax loss harvesting benefits, the site continues.

Against the backdrop of volatility, of course, with direct indexing, the investors owns the individual securities rather than a comingled fund, according to russellinvestments.com. While losses absorbed on receding stocks belong to them, down the line, those setbacks can be leveraged to offset gains. That can mean a significant boost toward paring down the tax bill of the investor.

 

Published in Eq: Financials

Direct indexing has recently become a hot topic in the financial industry and for advisors looking to differentiate themselves from the pack, fund giant Vanguard recently identified four situations that they should consider using direct indexing. The first is tax-loss harvesting. For example, when an index is up, some of its holdings can be trading at a loss. An investor in a direct indexing strategy can sell those stocks and create a tax loss that can be used to offset taxes that are due as a result of an overall gain for the index. The firm also lists ESG as another reason. A custom index can be designed to avoid shares of firms involved with fossil fuels. The third situation is factor investing, or investing in companies that have specific factors such as growth, value, or quality. A custom index can be created to meet those criteria. The last situation Vanguard recommends is diversification. A custom index can be built to accommodate an investor that may be required to hold a certain number of shares in his or her employer.


Finsum:According toVanguard, tax-loss harvesting, ESG, factor investing, and diversification are four strategies that advisors should consider when building custom indexes.

Published in Wealth Management

For investors with assets in active bond mutual funds, there has never really been a time to implement tax-loss harvesting. Tax-loss harvesting is the process of selling securities at a loss to offset capital gains tax due on the sale of other securities. Until this year, investors had mostly experienced gains in their fixed income holdings tracing back to the 2008-2009 financial crisis. However, due to significant losses in fixed income this year, an opportunity has arisen for investors to transition their assets to ETFs through tax-loss harvesting. According to Morningstar Direct data, US fixed income funds have seen more than $205 billion in redemptions during the first half of the year. Sales in taxable bond ETFs, on the other hand, while slowing, still generated $53.8 billion in net inflows during the same period. This has set the stage for tax-loss selling out of mutual funds and into ETFs.


Finsum: Losses in active bond funds this year sets the stage for tax-loss harvesting into fixed income ETFs.

Published in Bonds: Total Market
Wednesday, 20 April 2022 19:35

Time to Harvest those Fixed Income Losses

It's never too early to begin thinking about tax-loss harvesting and there is a ripe situation in the bond market. The yield curve has been on the rise due to Fed tightening and inflation. Rising yields mean lower bond prices and ETF owners have taken a bath. Selling off those funds right now could give you a tax advantage later this year. However, investors should get out of the fixed income route altogether. Markets are beginning to show signs of a recession or straight volatility so replacing your bond ETF with another fixed-income ETF could help in the case of a recession. Or if bond prices begin to take off it's a good option to have some skin in the game.


Finsum: The wash rule makes harvesting losses in equity markets a bit difficult, but the plethora of bond funds and options gives investors better ability to harvest losses now.

Published in Bonds: Total Market
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