{"id":87,"date":"2008-01-01T08:21:04","date_gmt":"2008-01-01T16:21:04","guid":{"rendered":"http:\/\/marketriders\/weblog\/?p=87"},"modified":"2017-03-28T14:28:39","modified_gmt":"2017-03-28T21:28:39","slug":"make-money-in-down-markets-harvest-tax-losses-with-etfs","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/make-money-in-down-markets-harvest-tax-losses-with-etfs\/","title":{"rendered":"Make Money In Down Markets: Harvest Tax Losses With ETFs"},"content":{"rendered":"

If you have exposure to an asset class, it\u2019s important to
\nmaintain that exposure and not try to become a fortune-teller, attempting to figure
\nout when to \u201cget in or get out.\u201d <\/span>The
\nfamous professors at Yale have proven that asset allocation accounts for 90% of
\na portfolio\u2019s return and that stock picking and market timing account for less
\nthan 10%. <\/span>Many studies also show that
\nlarge up moves in the market happen quick and just a few days over many years,
\naccount for most of the gains that markets achieve. <\/span>So trying to time a market \u2013 particularly in
\nthese volatile times, is a fool\u2019s errand.<\/p>\n

\n

But there is something you can do during a downtown to pick
\nup a little extra return besides shorting stocks. <\/span>ETFs are unique vehicles for helping with the
\ntax bill in large market downturns such as the one we are experiencing. <\/span>Did you know that you can sell an ETF for a
\nloss and buy a similar one that gives you substantially the same exposure, and
\ntake a tax deduction? <\/span><\/p>\n

\n

Let\u2019s say that in 2007 you decided to build portfolio exposure
\nto emerging market countries. <\/span>In a
\ntaxable account, you purchased the iShares
\nMSCI Emerging Markets Index (EEM)<\/span> \u2013 or you bought an emerging markets mutual
\nfund. <\/span><\/p>\n

\n

Assume that today your investment is down (10%) from the
\nrecent global equities correction. <\/span>You
\nstill want to maintain the emerging markets exposure, not become a market
\ntimer, but still benefit from the loss you\u2019ve incurred.<\/p>\n

\n

In our above example, simultaneously sell EEM, take your 10%
\nloss and buy Vanguard\u2019s VWO. <\/span>If you
\ncompare EEM and VWO, over the last 2 years, they are substantially similar
\nETFs. <\/span>They practically move together,
\nhold many of the same companies, and are allocated amongst the same countries
\nin almost the same proportion. <\/span>But you\u2019ve
\nnow created a tax loss without triggering \u201cwash sale\u201d rules. <\/span>The only expense might be $20 of online
\nbrokerage fees. <\/span>If you\u2019ve come to love EEM
\nand simply can\u2019t stomach owning VWO, then reverse the transaction in 31 days! <\/span><\/p>\n

\n

Before ETFs, getting this type of tax-loss benefit was
\nvirtually impossible. <\/span>You simply can\u2019t
\ndo it with mutual funds because they are not easy to sell, they are structured
\nas \u201cfunds\u201d so you can\u2019t easily track tax lots, and you pay taxes based upon the
\nredemptions going on inside the fund. <\/span>Conversely, ETFs are like any \u201cstock\u201d and you can easily figure out
\nwhich shares to sell based upon tax lots. <\/span>One caveat \u2013 check with your CPA to confirm that this works for your
\nsituation. <\/span>I\u2019m not licensed to give tax
\nadvice. <\/span><\/p>\n

\n

There are many sites to help you figure out which ETFs are
\ncomparable to the ones that you currently own. <\/span>On MarketRiders, our portfolio engine has easily classified all
\nETFs but you can find this information on SeekingAlpha, XTF, Index Universe,
\nand Yahoo. <\/span>It takes a little work, but it\u2019s
\nclearly worth the effort and might make you feel a little better during the
\ncurrent downturn. <\/span> ubuntu ftp server<\/a> <\/a> Switonperkerbti<\/A><\/p>\n","protected":false},"excerpt":{"rendered":"

If you have exposure to an asset class, it\u2019s important to maintain that exposure and not try to become a fortune-teller, attempting to figure out when to \u201cget in or … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[22],"tags":[],"yoast_head":"\nMake Money In Down Markets: Harvest Tax Losses With ETFs | MarketRiders<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.marketriders.com\/investing\/make-money-in-down-markets-harvest-tax-losses-with-etfs\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Make Money In Down Markets: Harvest Tax Losses With ETFs | MarketRiders\" \/>\n<meta name=\"twitter:description\" content=\"If 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