How Tax‑Loss Harvesting Adds 1%–2% Annually
Ron McCoy and Freedom Capital Advisors help investors turn market downturns into opportunities, making sure every dollar is working smartly to build long-term wealth. Whether your portfolio is $500K or $50M, tax-efficient management can make a significant difference.
Tax-loss harvesting is one of the most overlooked yet powerful tools for boosting after-tax returns in a well-managed investment portfolio. For high-net-worth investors, harvesting losses systematically can add 1%–2% in annual performance, compounding into significant savings and growth over time. Ron McCoy integrates proactive tax strategies like this to maximize client outcomes without increasing risk.
What Is Tax-Loss Harvesting?
Tax-loss harvesting involves selling investments that have declined in value to offset capital gains from other investments. The losses can be used to reduce taxes on capital gains and even offset up to $3,000 of ordinary income annually. By immediately reinvesting in a similar—but not “substantially identical”—asset, you maintain your market exposure while reaping tax benefits.
Source: IRS – Capital Gains and Losses
Case Study: $5M Portfolio Boost
A $5M diversified portfolio faced $400,000 in realized capital gains in 2022. By harvesting $250,000 in strategic losses from underperforming positions and reinvesting the proceeds into similar ETFs, the client offset 62% of their tax liability, saving over $100,000 in taxes without changing their market exposure.
Key Tax-Loss Harvesting Strategies
1. Monitor Portfolios Regularly
Set automated reviews—quarterly or semi-annually—to identify tax-loss harvesting opportunities without waiting until year-end.
2. Avoid the Wash Sale Rule
Ensure that replacement securities are not “substantially identical” to the ones sold, complying with IRS rules to retain your tax benefits.
3. Pair Gains with Losses
Coordinate harvesting alongside gains from rebalancing or liquidity events to optimize overall tax efficiency.
Actionable Tips for Investors
- Use Tax-Aware Platforms: Leverage brokerage platforms that offer automated tax-loss harvesting, especially for taxable accounts.
- Document Carefully: Maintain meticulous records of transactions to streamline tax reporting.
- Harvest Year-Round: Don’t wait until December—opportunities can arise at any point in volatile markets.
Ron McCoy’s Expert Perspective
Ron emphasizes that while tax-loss harvesting is powerful, it must be used thoughtfully as part of a holistic strategy. His approach ensures investors capture losses when beneficial—without disrupting their broader financial plan or triggering costly mistakes.
