Wall Street phenom and Ark Investment Management founder Cathie Woodrecently said in a monthly conferencecall that during market drops, she willbuy up her favorite stocks — Tesla,for example. However, Ark also sellsother stocks to “tax-loss harvest” during that time.
Wood is a smart trader, but she’s alsoa smart tactician when taking advantage of market losses. She’s a perennialtax-loss harvester — unlike most advisors, who may wait until the fourthquarter to harvest client portfolio lossesfor tax reasons.
Advisors really should be “tax-smart”and harvest losses throughout the year,as opposed to doing it seasonally, saidRob Klapprodt, co-founder and corporate strategy officer, for Vestmark, afinancial software platform. The reason:They would book more losses.
“We typically see a spike in tax-loss
harvesting activities in Q4,” Klapprodt
said. “[This] makes sense as [they’re]
starting to think about the year that just
transpired and how to minimize the tax
bill that may be coming up.”
The problem is, security prices fluc-
tuate throughout the year. Think Tesla:
It fell 21% from March 1 to March 8,
but may end the year with a gain. That
won’t help a client’s year-end tax bill,
but when Tesla was down, it was a
good time to sell and book those losses,
Advisors are “able to exploit or get
some benefit throughout the year of dips
in security prices,” versus waiting to the
end of the year, when prices may have
rebounded, Klapprodt explained. That
said, there are a couple of factors to keep
Klapprodt says that instead of mak-
ing hundreds of little trades that create
record-keeping headaches and increase
overhead, Vestmark encourages advi-
sors to set a minimum trade size.
WASH SALE MANAGEMENT
A wash sale is selling to generate aloss and buying it back within a 30-dayperiod. The Internal Revenue Servicedoesn’t “deem a sale that generates aloss as being a true sale if you turnaround and buy it back inside of 30days,” Klapprodt said. “Advisors haveto be mindful of that,” since they can’tharvest that loss.
To wait out the 30 days, they can“park” the amount generated from thesale into cash or buy a different stock oreven an index fund within that period oftime without being dinged by the IRS.
For example, if they sell Tesla during
a dip, they can move those proceeds into
the Nasdaq index or an ETF that might
be tech-related (it may have a small
amount of Tesla). On day 31, they can
move it back into Tesla if desired.
Although Vestmark software willsend alerts to mark the end of thewash sale period, “we don’t impose anyinvestment decisions or [say] what usersshould or shouldn’t be doing,” he said.“[Yet] we tend to see people parking[proceeds] into some sort of ETF duringthe wash sale period.”
Klapprodt says the goal of tax-loss
harvesting is to “generate the desired
amount of losses in the client portfolio
and just try to improve the client’s after-
By harvesting throughout the year,
advisors can generate more losses
than they would by waiting until Q4,
Klapprodt says. He also understands
that selling at a loss is counterintuitive,
but adds that advisors need to be savvy
when it comes to tax issues.
For example, he cites GameStop,which ran up in January (to $347.51 on
By Ginger Szala and Bernice Napach
Why Ark’s Cathie Wood Harvests Tax Losses
Year Round, and You Should, Too
A savvy advisor understands how to keep an eye on lowering a client’s tax
bill, says Vestmark’s Rob Klapprodt.