That is going to depend on what the rules are, and what rates you pay. But is tax-loss harvesting beyond the wit of everyone but WealthFront? No. If you aren't bothered to do it manually then it can't be a big benefit for you...it is always amazes me that companies manage to base their products around utterly pointless/marginal features that no-one uses, like why do you care? It is like people choosing an advisor because of their charts...yep, they got the charts from a third-party charting provider for $10/month, and you are going to pay tens of thousands (or more) over a lifetime. Smh.
>If you aren't bothered to do it manually then it can't be a big benefit for you...
Wealthfront has economies of scale to write a program to perform tax loss harvesting automatically. Just because it's not worthwhile for me to do it manually myself doesn't make it not worthwhile for a program to do it automatically. Wealthfront does daily tax loss harvesting on individual stocks. That would be a tremendous amount of work for me to do manually.
That said, I don't know whether Wealthfront's benefit outweighs their 0.25% fee.
I guess what we really need is a well-regarded open source program that hooks into brokerage's API and does this advanced tax loss harvesting.
> Wealthfront does daily tax loss harvesting on individual stocks
Does WealthFront do anything at the individual stock level? My understanding from looking at their landing page [1] is that they basically just allocate your money across a number of publicly traded ETFs:
> How do you choose my investments?
> We choose exchange-traded funds (ETFs) that track an index, such as the S&P 500 or emerging markets. Wealthfront chooses the ETFs with the lowest costs and proper tracking of their index.
Also, you pay the expense ratios of those ETFs in addition to the fees that WealthFront charges:
> What are the costs to invest?
> We’re glad you asked. Our annual advisory fee is 0.25%. On average, you’ll also pay a low 0.06%–0.13% expense ratio. Companies who run investment funds charge this fee, and it comes straight out of that fund’s performance (you aren’t billed directly). Everyone who invests in ETFs pays this fee.
I think would be fairly easy for any ETF investor to approximate WealthFront's tax-loss harvesting strategy in their own brokerage accounts. E.g. simply go in once a quarter and sell any lots of VOO for a loss where possible, and replace with an equivalent like SPY.
According to Investopedia at least [1], VOO and SPY are not considered substantially identical by the IRS:
> For example, if an investor sells the SPDR S&P 500 ETF (SPY) at a loss, they can immediately turn around and purchase the Vanguard S&P 500 ETF.
> The rationale is that the two S&P 500 ETFs have different fund managers, different expense ratios, may replicate the underlying index using a different methodology, and may have different levels of liquidity in the market. Presently, the IRS does not deem this type of transaction as involving substantially identical securities and so it is allowed, although this may be subject to change in the future as the practice becomes more widespread.
I wonder where that page gets its information. Its own quote links to an IRS document that doesn't seem to mention this case. Other places online recommend against it.
>There has been no IRS ruling on whether ETFs from two different companies that track the same index are considered substantially identical.
>Investment advisors and tax planners recommend against selling an index mutual fund from one fund company and buying another index fund tracking the same stock index from another mutual fund company.
>And while arguably swapping from index funds like SPY to IVV are almost certainly a wash sale abuse (or at least, a transaction that should trigger the wash sale rules)
If you look at Wealthfront's own documentation, when they do tax loss harvesting with ETFs, they find ETFs that track similar but not identical indexes:
Yup it sounds like a bit of a gray area for now. I think for most people it probably comes down to the way your broker reports the transaction on your 1099. I.e. if my broker reports it to the IRS as a "covered" loss, that's probably what I would use when filing my taxes.
I don't personally care. I'm just saying that it's not crazy to want to do this sort of thing without figuring it out yourself. Maybe it pays for itself in some cases?
