Have you ever heard of tax-loss harvesting? Do you know what it is?
David Koenig, chief investment strategist at Charles Schwab's Intelligent Portfolios, talked to TheStreet about tax-loss harvesting, what it is and how investors can use it to their advantage thanks to robo-advisers.
"Tax-loss harvesting is a portfolio management process that involves monitoring your portfolio and when securities in that portfolio have fallen below their purchase price, selling that security to capture the loss and then reinvesting the proceeds of that sale into an alternate security that is similar not but quote unquote substantially identical.," he said.
"Because ultimately you want to maintain your intended asset allocation and those captured losses at the end of the year they accrue over the course of the year and they can be applied when filing your taxes to offset realized capital gains from other securities sold over the course of the year and up to $3000 in ordinary income," he continued. "To the extent that those captured losses exceed capital gains for the year. So it's a very powerful process that can help to reduce current tax liabilities. Deferring those tax liabilities into the future ultimately leaving an investor with more money to save and invest and potentially grow over time."
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