While we know that exchange traded funds (ETFs) are more tax efficient than mutual funds, they’re also ideal for tax-loss harvesting. Tax-loss harvesting is when you use your losses to offset your gains in your portfolio. ETFs are great for tax-loss harvesting because they let you maintain the same allocations without violating the wash sale rule by switching into similar but not identical ETFs, according to Elaine Floyd of Advisor Perspectives. With so many ETFs on the market now, finding a replacement is easy. However, you want to make sure the substitute ETF is different enough, so check with a tax adviser.
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