The same could be done with stocks like General Mills Inc. (down 20%) and Campbell Soup Co. (down 23%), or CVS Health Corp. (down 19%) and Walgreens Boots Alliance Inc. (down 31%).
Each of those companies have different risk profiles than their peers, however, so it’s smart to dig into company details to find the best fit.
Harvesting ETFs
Tax-loss harvesting can also be done with exchange-traded funds. For example, you could replace the SPDR S&P Regional Banking ETF with the iShares U.S. Regional Banks ETF, or the Global X Cannabis ETF with the Cambria Cannabis ETF. To make sure that you don’t violate the wash-sale rule, try to pick a replacement ETF that tracks a different index.
Some mutual funds have also distributed capital gains this year, which can be offset by tax loss harvesting.
Mutual funds often incur capital gains when their portfolio managers buy and sell securities within the fund, either to reposition a portfolio or to meet redemptions when clients pull money out of the fund. If the security has risen since it was purchased, there will be a capital gains tax. Those taxes in aggregate get passed on to fund holders.
Funds with some of the biggest tax bills include the Columbia Real Estate Equity Fund, Delaware Ivy Value Fund, Federated Hermes Kaufmann Large Cap Fund and JPMorgan Tax Aware Equity Fund, according to Morningstar. All these funds are set to pay out more than 20% in estimated distributions. (The capital gains distribution on a mutual fund is expressed as a percentage of its net asset value, which is the fund’s assets minus its liabilities, divided by the number of shares outstanding.)
The capital gains for ETFs are usually much less, due to their more tax-efficient structure. Very few ETFs are expected to distribute capital gains for 2023, according to Morningstar.
Robo Services
Keep in mind, robo-advisors like Betterment and Wealthfront can do the work of tax-loss harvesting for you. Many have automated systems running throughout the year that sell securities at a loss in order to offset other positions set to incur a gain. Often the algorithms can do this more efficiently than investors on their own.
For instance, Wealthfront’s software harvested $1.5 billion in losses in 2022. The average potential tax savings was worth 2.9% of a client’s portfolio value, the company said.
This article was provided by Bloomberg News.