Four Myths of Tax Loss Harvesting

Wealth management advisors have long recognized the value of tax loss harvesting. In this session, Paul Bouchey, the chief investment officer at Parametric, debunked some of the myths surrounding tax loss harvesting and provides a more realistic picture of what to expect from tax management strategies in the context of an equity portfolio.

Myths:

1. Tax loss harvesting is best done towards the end of the year
2. You can double your tax alpha if you double your active risk
3. Tax loss harvesting requires good substitutes (stocks or ETFs)
4. You can earn a 2% tax “alpha” in perpetuity

Learning objectives:

• Understand the impact of taxes on an equity portfolio
• Review the basics of tax loss harvesting and tax management
• Compare year end versus continuous tax management
• Quantify the relationship between tax alpha and tracking error risk
• Contrast tax management of stocks versus ETFs, and using a quantitative approach versus pairs trading.
• Understand the diminishing nature of “tax alpha” in the context of an appreciating portfolio