Tax strategy that can compensate for losses – but investors must act now

Investors may get a wake-up call this winter when it comes to taxes, but it doesn’t have to be that way.

According to BNY Mellon’s Ben Slavin, selling losing investments is an important time to cut back on capital gains. He warns that waiting until January or February may be too late.

“Mutual fund investors are in for a pretty nasty surprise,” the firm’s global head of ETFs told CNBC’s “ETF Edge” last week. “Many of the mutual fund companies have already provided estimates on their website, so investors can take a look and see what their expectations will be around capital gains and what kind of tax bill they’re going to have at the end of the year.”

With the major indices 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 take a look at the portfolio you have and understand how you position yourself in these markets. It’s a double-edged sword.”

Matt Bartolini of State Street Global Advisors also sees benefits for investors looking to offset tax losses and remain in the market.

“You own a mutual fund that tracks the broad base of U.S. stocks. … That mutual fund could actually be in line to pay a large capital gains dividend because of the loss associated with the overall portfolio,” the company’s CEO said in the same. the segment. “At this point, sell that mutual fund and then buy an associated ETF, and therefore you’re able to maintain your market exposure and reap those losses in some of those areas of the market.”

Bartolini said investors can also sell broad-based ETFs and buy back into others that cover a similar marketplace.

“One of the tactics that we see used in clients’ portfolios in tax-loss harvesting is to just lower your costs, go into a lower cost exposure, harvest some losses and maintain that allocation to a market exposure like U.S. stocks, like emerging market stocks,” he said.