Vanguard's recent article posted touting the benefits of automated tax-loss harvesting got me thinking. I applaud Vanguard for turning to a foundational component of investment management (using losses to offset gains) during a period of volatility.
But tax-loss harvesting isn’t the slam dunk it is often held out be.
How To Harvest Losses
Tax-loss harvesting involves selling a security at a loss and buying a substantially similar holding in its place—so you might swap, say, Total Stock Market Index (VTSAX) for 500 Index (VFIAX). You get the tax benefits of booking a loss and get to stay invested in the market. It’s a win-win, right?
Not so fast.