Investors could get a tax shake-up this winter, but they don’t have to.
According to BNY Mellon’s Ben Slavin, it’s a crucial time to sell loss-making assets to reduce capital gains. He warns that it may be too late to wait until January or February.
“Mutual fund investors are in for a pretty nasty surprise,” the company’s global head of ETFs told CNBC’s ETF Edge last week. “Many mutual fund companies have already provided estimates on their website, so investors can take a look at what their expectations are in terms of capital gains and what kind of tax bill they will receive at the end of the year.”
With major indexes lower for the year, Slavin claims the strategy has broad appeal.
“It’s not just about reaping the losses,” he said. “It’s the right time of year to look at the portfolio you have and understand how to position yourself in these markets. It’s a double-edged sword.”
State Street Global Advisors’ Matt Bartolini also sees benefits for investors looking to absorb tax losses and stay in the market.
“They own a mutual fund that reflects the broad base of US stocks. … This mutual fund could actually be poised to pay a large capital gains dividend because of the loss associated with the overall portfolio,” the company’s chief executive said in the same segment. “At this point, sell that mutual fund and then buy a related ETF so you can maintain your market exposure and reap those losses in some of those areas in the market.”
Bartolini said investors could also sell broad-based ETFs and buy back into others that cover a similar market.
“One of the tactics we see being used in clients’ tax loss harvesting portfolios is to just cut your costs, take a lower cost exposure, harvest some losses and keep that allocation to a market exposure like US equities like emerging markets market stocks,” he said.