What Is Tax-Loss Harvesting (Optimized at the Individual Equities Level)?

“Tax-Loss Harvesting” refers to systematically trading positions within your account in order to utilize any losses in your portfolio to offset the gains, thus reducing your overall tax burden.

Many advisers offer tax-loss harvesting. But if they are using funds (such as ETFs or mutual funds), the opportunity to generate this advantage is quite limited. And even this service is typically only offered for large accounts.

OpenInvest can provide Tax-Loss Harvesting at the Individual Equities Level, for all accounts.

This is a much more sophisticated approach, traditionally only available to the extremely wealthy. Because OpenInvest’s innovative model uses technology to bypass fund managers and give you direct ownership of the underlying companies, there is a much greater opportunity to trade and optimize for tax-loss harvesting between the gains and losses of individual stocks.

Wealthfront – who offers this features on accounts >$100,000 – estimates that this approach generates an average of 2.03% additional gains per year. Because this “tax alpha” is so variable (Wealthfront picks very specific years from which to present this data) we would rather be more conservative in our claims. And Tax-Loss Harvesting opportunities are not always available or successful.

Key takeaways are that: A) Tax-Loss Harvesting at the Individual Equities Level tends to create a much stronger advantage than TLH practiced with just a mix of funds. And B) Since the gains from Tax-Loss Harvesting at the Individual Equities Level can be significant – generally more so than the cost of management fees – it is a very important consideration in selecting your investment provider.