An Ode to the Joy* of Rebalancing and Tax Loss Harvesting

As we cruise into the end of a volatile and exceedingly difficult year, perhaps counting our blessings would be in order.  True, we had relentless ups and downs in the equity markets this year, thrills, chills and spills galore as we seemed to go from crisis to crisis, good news following bad and followed again by bad, over and over…

So what’s to appreciate?  What good can we find in markets where the S&P 500 drops almost 14% in Q3, followed by the best October in a very long time, up almost 11%?  Did I mention small cap and international were even more volatile?  So what if, as it appears in this last week of Q4 and the year, the S&P 500 will be up over 12.5% for Q4 and a few % for the Year (knock on wood!)–does that make it something to celebrate?

Well, at least we have been making lemonade out of the lemons.  In taxable accounts when the market drops like that, selling securities that have losses (harvesting the losses) means that you build up a store of loss carryforwards, which you will use at some point to reduce your taxes.  That’s a nice bonus!

Naturally we immediately reinvest in something similar, so when the market bounces back you do not miss any of the return – now unrealized gain.  If the market ends up at the same place, you created a tax deduction and an unrealized gain.  It is not often you come out ahead of the IRS, but every now and then you can.

Disciplined investors rebalance after market declines.  Just when fear is at its peak, the accounts buy more equity.  Amazing, nerves of steel– it actually works!  Buying low and selling high, according to a disciplined plan.

So let us wish you all a Happy New Year!  Let’s hope for the best, be prepared for some difficulty, and try not to worry too much next year.  I guess we are all veterans now.

*With apologies to Beethoven

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Roger Hewins
Roger Hewins

President

Roger Hewins is the President of Hewins Financial Advisors, based in North Palm Beach, FL. Roger has more than 30 years of experience in investment management, helping bring the sophisticated financial advice typically reserved for large institutional clients to everyday investors, from high-net-worth individuals and families to small businesses and retirement plans.

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An Ode to the Joy* of Rebalancing and Tax Loss Harvesting

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