November 9, 2021 | Vanguard Perspective

Tax-loss harvesting: Who benefits the most?

Now is a great opportunity for you to incorporate holistic wealth and tax-planning discussions into your client portfolio reviews to determine the optimal approach specific to your clients' financial situation. By developing a strategy in line with the profile of capital gains they can reasonably expect in the future, you can work with your clients to help improve their after-tax return to its full potential.

Get the support you need for your client conversations

To support you with these types of tax-planning conversations with your clients, our investment research team recently published findings on the value of tax-loss harvesting from a holistic viewpoint. It includes fact-based assumptions of the individual investor profile and various market environments. The analysis demonstrated that benefits from tax-loss harvesting do not take place in an isolated corner of an investor's taxable account. On the contrary, it is best thought of as a potentially integral element of an overall tax optimization and wealth-planning strategy.

In this new research paper, our team examined more than 80,000 investor profile and equity market volatility environment combinations. The team concluded that the tax-loss harvesting benefit varies along three key dimensions—investor profile, volatility environment, and granularity of the investment universe—and discussed the importance of each in forming an appropriate expectation.

Notes:

  • All investing is subject to risk, including the possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax advisor before taking action.