No one is happy with today’s negative returns. But big losses present big tax-loss harvesting opportunities. Harvesting losses is the process of selling a security in a taxable account at a loss and using that loss to offset realized taxable gains elsewhere in the portfolio to help reduce taxes.
And with global stocks and bonds both down on the year, you may be looking at the most significant tax-loss harvesting opportunities in decades.
In taxable accounts, when you sell a position that has lost value, you can use the loss to offset capital gains that result from selling securities at a profit during the year. Your booked losses can also offset funds’ annual capital gain distributions.
At year-end, if your capital losses exceed your gains (or if you don’t have any gains), you can use the losses to offset up to $3,000 in non-investment income, even though that is often taxed at a higher rate than capital gains. Losses greater than $3,000 carry forward and can be used to offset capital gains and ordinary income over your lifetime.
Importantly, when reinvesting proceeds from the sale of a losing investment, you must abide by the Internal Revenue Service’s Wash-Sale Rule, which prohibits claiming a loss on the sale of an investment if the same or “substantially identical” investment is purchased either 30 days before or after the sale date.
Spanning all major asset class categories, SPDR ETFs can be swap options for both stock and bond portfolios.
|Equities||Low Cost||Smart Beta|
|US Large Cap||SPDR® Portfolio S&P 500® ETF [SPLG]||SPDR® MSCI USA StrategicFactorsSM ETF [QUS]|
|US Growth||SPDR® Portfolio S&P 500® Growth ETF [SPYG]|
|US Value||SPDR® Portfolio S&P 500® Value ETF [SPYV]|
|US Mid Cap||SPDR® Portfolio S&P 400™ Mid Cap ETF [SPMD]|
|US Small Cap||SPDR® Portfolio S&P 600™ Small Cap ETF [SPSM]|
|Equity Income||SPDR® Portfolio S&P 500® High Dividend ETF [SPYD]||SPDR® S&P® Dividend ETF [SDY]|
|Developed Ex-US||SPDR® Portfolio Developed World ex-US ETF [SPDW]|
|Emerging Markets||SPDR® Portfolio Emerging Markets ETF [SPEM]|
|Aggregate||SPDR® Portfolio Aggregate Bond ETF [SPAB]||SPDR® Doubleline® Total Return Tactical ETF [TOTL]|
|Mortgages||SPDR® Portfolio Mortgage-Backed Bond ETF [SPMB]|
|US Treasuries||SPDR® Portfolio Intermediate Term Treasury ETF [SPTI]|
|Corporate Bonds||SPDR® Portfolio Intermediate Term Corporate Bond ETF [SPIB]|
|High Yield/Loans||SPDR® Bloomberg High Yield Bond ETF [JNK]||SPDR® Blackstone Senior Loan ETF [SRLN]|
|EM Debt||SPDR® Bloomberg Emerging Markets Local Bond ETF [EBND]|
If you harvest losses only at yearend as many investors do, investments that were down early in the year could bounce back into positive territory — resulting in missed opportunities to sell losers and book losses to offset realized gains. That’s why it is best to implement tax-loss harvesting throughout the year as losses occur.
Down markets can be challenging, but they do offer the chance to reduce your tax burden — and potentially your costs if you replace losing positions with low-cost ETFs.
To guide your tax-loss harvesting decisions, contact a SPDR ETF Representative. We’re happy to help.
Tax Loss Harvesting
A strategy designed offset capital gains tax liabilities by selling securities at a loss. Selling at a loss allows investors to accrue tax credits that can be matched with tax liabilities, thereby reducing an overall tax bill. The strategy is most often used to offset liabilities of short-term capital gains, which are taxed at a higher rate than long-term gains, i.e., gains on assets held a year or more.
The IRS rule that prevents claiming a loss for tax purposes on sales of securities if selling investors purchase a “substantially identical” security within 30 days of that sale. Investors sometimes manage the restrictions of the wash-sale rule by purchasing a related security within the 30-day period — such as a S&P 500 ETF in place of a single company within that index.
Important Risk Disclosures
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Investing involves risk included the risk of loss of principal.
The views expressed in this material are the view s of SPDR Americas Research Team through the period ended May 31, 2022, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
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Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.
Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Diversification does not ensure a profit or guarantee against loss.
Non-diversified funds that focus on a relatively small number of [stocks, issuers, countries] tend to be more volatile than diversified funds and the market as a whole. While the Fund is expected to operate as a diversified fund, it may become non-diversified for periods of time solely as a result of changes in the composition of its benchmark index.
Companies with large market capitalizations go in and out of favor based on market and economic conditions. Larger companies tend to be less volatile than companies with smaller market capitalizations. In exchange for this potentially lower risk, the value of the security may not rise as much as companies with smaller market capitalizations.
Value stocks can perform differently from the market as a whole The value style of investing emphasizes undervalued companies with characteristics for improved valuations, which may never improve and may actually have lower returns than other styles of investing or the overall stock market.
Bonds generally present less short-term risk and volatility than stocks but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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The fund is actively managed. The sub-adviser’s judgments about the attractiveness, relative value, or potential appreciation of a particular sector, security, commodity or investment strategy may prove to be incorrect, and may cause the fund to incur losses. There can be no assurance that the sub-adviser’s investment techniques and decisions will produce the desired results.
Investments in asset backed and mortgage backed securities are subject to prepayment risk which can limit the potential for gain during a declining interest rate environment and increases the potential for loss in a rising interest rate environment.
Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.
Because of their narrow focus, financial sector funds tend to be more volatile. Preferred Securities are subordinated to bonds and other debt instruments, and will be subject to greater credit risk. The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. The fund may contain interest rate risk (as interest rates rise bond prices usually fall); the risk of issuer default; inflation risk; and issuer call risk. The Fund may invest in U.S. dollar-denominated securities of foreign issuers traded in the United States.
High-yield municipal bonds are subject to greater credit risk and are likely to be more sensitive to adverse economic changes or subject to greater risk of loss of income and principal than higher-rated securities.
Investments in senior loans are subject to credit risk and general investment risk. Credit risk refers to the possibility that the borrower of a Senior Loan will be unable and/or unwilling to make timely interest payments and/or repay the principal on its obligation. Default in the payment of interest or principal on a Senior Loan will result in a reduction in the value of the Senior Loan and consequently a reduction in the value of the Portfolio’s investments and a potential decrease in the net asset value (“NAV”) of the Portfolio.
Investing in high yield fixed income securities, otherwise known as “junk bonds”, is considered speculative and involves greater risk of loss of principal and interest than investing in investment grade fixed income securities. These lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
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