Tax loss harvesting - basic questions

[TheAbacus]

I had a question for the veteran investors on the forum. I recently purchased a large lot (lumpsum) of the Vanguard Tax Managed Small Cap Index fund (VTMSX). It appears that I bought it at one of the many peaks, that relatively volatile indices like this one incur. I have a potentially harvestable loss of ~$1500. However, I have no experience with tax loss harvesting.

1. When does one bite the bullet and perform tax loss harvesting? Do I need to wait for a Brexit like situation where there is a sizable dip in the amount, or can I book this as a loss at this time? I am favoring the latter.

2. Would VSMAX be a reasonable TLH partner to VTMSX? They seem to corelate for the most part, but don't follow the same index.

3. How do I go back to VTMSX at a later date?

4. Does Vanguard perform the exchange (or 'buy-sell' transaction) on the same day's price, or does the transaction get delayed by 24-48 hours?

 

I appreciate your insights.

[PhysicianOnFIRE]

1.  I tend to harvest any losses that exceed $1,000. The opportunity may not last (small caps are up nearly 1% today). The Brexit scenario was also a very brief dip. I got lucky and caught the nadir when I harvested losses then.

2. I would say yes. Both are small cap funds, which is good enough for me. I noticed the tax-managed fund has returnded 0.4% YTD with the regular small cap fund returning 3.7%. Interesting. Better to get a return and pay a bit of tax than to get very little return.

3. I wouldn't TLH unless you're comfortable staying in the new fund indefinitely. You can wait 31 days and do another exchange back to the original fund, but if the fund has any gains, you'll be taking some gains, offsetting the losses you just harvested. If the market is down more, by all means, harvest more losses after the 31 days have passed by exchanging back to the original fund.

4. As long as you get the order in before the closing bell, the exchange between mutual funds should be executed at the end of the trading day's prices.

Best,

-PoF

[childay]

I think POF covered it

 

I had previously wondered about the amount people bother with for harvesting

https://www.whitecoatinvestor.com/forums/topic/what-amount-is-worth-tax-loss-harvesting/

 

[TheAbacus]

Thank you both for your insights. I like the prior thread you referred me to @childay.

PhysicianOnFIRE wrote:

I noticed the tax-managed fund has returnded 0.4% YTD with the regular small cap fund returning 3.7%. Interesting. Better to get a return and pay a bit of tax than to get very little return.

 

Click to expand...

Comparing YTD seems a bit harsh to me - I suspect the past 5 months have not been great for REITs, which may explain the lower performance of VTMSX which holds some of these. Over longer periods (1Y, 5Y and 10Y), VTMSX appears to have outpaced VSMAX.

No free lunch, just a different risk profile.

I have nothing against VSMAX; over long investing periods, who knows which one will beat the other.

 

On a different note, I see that both you and I quoted your brofitable experience in 2016.  

[ENT Doc]

Different question (sorry to poach).  I know the basic timing of avoiding the wash sale.  I've been clued into the nuance of shutting off dividend reinvestment even in tax advantaged accounts if the same fund is held in there too.  What I don't know is if wash sales are tracked by each brokerage firm separately or by the IRS somehow.  I get how Vanguard could determine if a wash sale was made, but how would they know if I sold the fund in Vanguard and used a rough equivalent of the expected proceeds from a savings account and invested in the same fund at the end of the day with a different brokerage firm?  Could then just transfer the Vanguard proceeds into the savings account the next day and be in the same investment position but with captured capital losses.  I'm sure this would still qualify as a wash sale, but my question is who keeps tabs on this?  Thanks!

[PhysicianOnFIRE]

ENT Doc wrote:

my question is who keeps tabs on this?

Click to expand...

You do Or at least you are supposed to. Wash sales within one brokerage may be recorded and reported in your end-of-year paperwork. But wash sales across brokerages are up to you to report. I'm sure an audit would uncover any that you missed.  :?