There's a particular kind of investing advice that lives forever on the internet because it sounds clever: harvest your losses, lower your taxes, get rich quietly. The math is real. The story usually isn't.
What actually happens when you harvest a loss is that you accept a slightly different version of the same investment, you book a paper loss, and you defer — not erase — a small slice of tax. Do that for thirty years, and the deferral compounds in ways that matter. Do it once, and it's mostly noise.
The interesting question isn't whether harvesting works. It's where it earns its keep and where it just generates trades that make your tax preparer mildly annoyed in February.
We rebuilt our internal harvesting model this year on three principles. The first is that bid-ask costs are real and small accounts give them back faster than they save. The second is that wash-sale rules apply to your spouse's IRA whether you remember that or not. The third — and the one most platforms get wrong — is that the right replacement security is rarely the one that maximizes correlation. It's the one you'll still want to own in eleven months.
About the firm
Harmony Financial Advisors is a fee-only fiduciary firm in Northern New Jersey, serving individuals, families, and business owners across Bergen, Hudson, Morris, Passaic, and Essex counties. We accept a small number of new clients each year.
Start a conversation