Tax loss harvesting (TLH) is a powerful tool that can help enhance portfolio returns by strategically using investment losses to offset gains. For financial advisors and investors using direct indexing strategies, knowing how to tax loss harvest regularly can make a significant difference in achieving better after-tax performance. In this article, we'll explore how to tax loss harvest effectively, its benefits, and why it plays a crucial role in direct indexing strategies.

Understanding How To Tax Loss Harvest

Before diving into the details of how to tax loss harvest, it’s essential to understand the basics of this strategy. Tax loss harvesting is the practice of selling investments at a loss to offset taxable gains elsewhere in your portfolio. By doing this, investors can reduce their overall tax liability, thereby keeping more of their money invested and working toward long-term financial goals.

When you know how to tax loss harvest properly, you can utilize market fluctuations to your advantage. This strategy is especially beneficial when combined with direct indexing, where individual securities can be sold to capture losses while still maintaining the overall market exposure.

The Power of Regular and Automated Tax Loss Harvesting

One of the most important aspects of learning how to tax loss harvest effectively is understanding the value of doing it regularly. Many investors mistakenly believe that tax loss harvesting is only useful at the end of the year. However, regular, year-round harvesting can offer even greater benefits.

When you proactively harvest losses throughout the year, you can take advantage of market dips as they occur, locking in tax savings whenever opportunities arise. This approach ensures that you are maximizing the potential to reduce taxable income on an ongoing basis, rather than waiting for a single chance at year’s end.

Automation plays a key role in the process as well. Offerings like Orion Custom Indexing make it easier for financial advisors by automating the loss harvesting process, ensuring that opportunities for tax savings are captured consistently without the need for their constant manual intervention.
 

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Direct Indexing: A Customized Approach to Tax Loss Harvesting

Direct indexing is a modern investment strategy that allows for greater customization in portfolios compared to traditional mutual funds or ETFs. Knowing how to tax loss harvest within a direct indexing strategy can significantly improve the tax efficiency of an investor's portfolio.

With direct indexing, investors own individual securities rather than a fund. This ownership allows for the precise selection of which securities to sell to capture losses, providing a tailored approach to managing tax liabilities. Financial advisors can create personalized portfolios that align with their clients' values, risk tolerance, and financial goals while also implementing tax strategies like tax loss harvesting to optimize after-tax returns.

Orion Custom Indexing supports this customized approach by enabling financial advisors to implement direct indexing strategies seamlessly. With regular and automated tax loss harvesting built into the platform, advisors can focus on helping their clients achieve their broader financial objectives while maximizing tax efficiency.

Key Benefits of Implementing Tax Loss Harvesting with Orion Custom Indexing

When financial advisors consider how to tax loss harvest effectively, timeliness and precision are crucial. Orion Custom Indexing helps ensure that advisors don’t miss valuable opportunities for tax savings.

The platform's ability to harvest losses regularly, even from small market movements that clear our harvesting threshold, means that portfolios can achieve a higher degree of tax efficiency without requiring an advisor’s constant oversight. By regularly identifying opportunities to capture losses, Orion Custom Indexing helps advisors deliver more consistent, optimized outcomes for their clients.

This streamlined approach not only improves tax efficiency but also allows for better alignment with an investor’s long-term financial goals. As markets fluctuate, the Orion Custom Indexing regularly monitors the portfolio to capture losses and keep investments on track, enhancing the effect of tax savings over time.

Start Harvesting the Benefits

Understanding how to tax loss harvest effectively is a critical skill for financial advisors who want to maximize their clients’ after-tax returns. When combined with the flexibility of direct indexing, regular and automated tax loss harvesting becomes a powerful strategy for achieving greater portfolio customization and tax efficiency.

Orion Custom Indexing provides financial advisors with the tools they need to implement these strategies seamlessly. Advisors can focus on delivering exceptional value to their clients rather than monitoring for loss harvesting opportunities themselves, creating an effective opportunity for investment strategies that are as tax-efficient as possible.

If you're looking to enhance your approach to tax loss harvesting and direct indexing, start by exploring how Orion Custom Indexing can help you optimize your clients’ portfolios for greater long-term success.
 

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The views expressed herein are exclusively those of Orion Portfolio Solutions, LLC, an Orion Company, a registered Investment Advisor, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of Orion Portfolio Solutions, LLC. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed here and should understand that statements regarding fu­ture prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
This information is general in nature and is not intended as tax advice. You should consult a tax professional as to how this applies to an individual tax situation. Nothing contained herein is intended to constitute accounting, legal, tax, security or investment advice, nor an opinion regarding the appropriateness of any investment, or solicitation of any type.
Orion Portfolio Solutions, LLC, an Orion Company, is a registered investment advisor.
Custom Indexing offered through Orion Portfolio Solutions, LLC a registered investment advisor.
Custom Indexing is an investment strategy wherein a portfolio is managed to mimic an index or other portfolio, while taking into account the tax position, holdings, and individual investing preferences of a client. The performance of a portfolio using custom indexing may vary significantly from the target index (referred to as tracking error or tracking difference), and this variance may increase with greater customization within a portfolio.
Tax-loss Harvesting is a process by which securities trading at unrealized losses are sold to realize a taxable loss. Proceeds from the sales are then used to reinvest in alternate securities to maintain market exposure. Tax-loss Harvesting can be used as a strategy to offset realized gains from other investments and/or carried forward to later calendar years to offset future taxable gains.