I'm curious whether you hold different assets (in a tax-advantaged account) purely for tax purposes. Basically, instead of holding an ETF which is a basket of A & B, holding A & B independently. If A appreciates and B depreciates, you have an option to tax harvest both by donating A (not paying capital gains even though you had exposure to it, and using this as a source for any charitable giving) and selling B (as a capital loss to offset dividends or something else). If you held them as a single ETF it would be flat and you'd be able to do neither. This is feasible with two stocks but for a basket of >50 stocks it's not manageable and trading fees would be very high.
I had a lot of exposure to individual stocks before I shifted into index funds around 2014-2015. I've been donating a lot of this to charity since they've all gone up in the bull market. Now I'm left with a portfolio that's mostly just a handful of ETFs and feel like I don't have many options.
Note that my ideal portfolio would have 4-5 levers for different asset classes, each represented as an ETF or fund. It would be easy to manage and calculate exposure. But I'm worried that I'm losing some options at tax time by doing this.
Holding multiple stocks for tax purposes
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IlliniDave
- Posts: 3870
- Joined: Wed Apr 02, 2014 7:46 pm
Re: Holding multiple stocks for tax purposes
I do a little tax loss harvesting when the opportunity arises. My taxable account is a mix of stock mutual funds and a tax exempt bond mutual fund. I didn't really determine what I wanted to hold in the account with tax loss harvesting in mind (the exception was adding a "tax loss partner" for the original stock mutual fund). Of course the tax exempt bonds were chosen for the obvious tax reasons, but I have TLH'd with them too. Anything that can experience a capital loss can be used for TLH.
In my situation TLH is a tax deferral technique. So it makes sense for me since I project to start in a lower relative marginal tax bracket once I stop working. The regret would be if the taxes were raised to the point that the relatively lower brackets of the future are higher than the relatively high bracket I'm in now.
With a portfolio of individual securities vs funds you do have a lot more opportunities for TLH. Assuming you would periodically cash in some of the portfolio holdings, you also have a lot of ability to sculpt your capital gains income. You can do the same thing with funds, just typically fund investors hold fewer items, so the palette at any given juncture is smaller.
In my situation TLH is a tax deferral technique. So it makes sense for me since I project to start in a lower relative marginal tax bracket once I stop working. The regret would be if the taxes were raised to the point that the relatively lower brackets of the future are higher than the relatively high bracket I'm in now.
With a portfolio of individual securities vs funds you do have a lot more opportunities for TLH. Assuming you would periodically cash in some of the portfolio holdings, you also have a lot of ability to sculpt your capital gains income. You can do the same thing with funds, just typically fund investors hold fewer items, so the palette at any given juncture is smaller.