Turning Lemons Into Lemonade: The Power of Tax-Loss Harvesting

Tax-loss harvesting creates an opportunity every year for advisors to turn lemons into lemonade. Advisors can realize losses that their clients experienced during the year and use them to offset realized gains in other parts of their portfolio.

Intermediate- and longer-duration bond prices have been falling, bringing the 10-year Treasury yield to levels not seen since July 2007. Portfolios that have embraced the long-term advantages of extending duration might find a year-end opportunity in the recent price decline. This could allow them to harvest these losses and counterbalance any gains realized on the equity side of the portfolio.

See more: “Seek Tax-Loss Harvesting Opportunities Within Fixed Income ETFs

So, investors may want to swap their existing Treasury positions for one of Vanguard’s Treasury suite of ETFs. This includes the Vanguard Short-Term Treasury ETF (VGSH), the Vanguard Intermediate-Term Treasury ETF (VGIT), or the Vanguard Long-Term Treasury ETF (VGLT).

“Exposure to the intermediate or long end of the Treasury curve can lock in higher interest rates for longer,” according to Vanguard. “It can also act as a stronger diversifier against future equity volatility, when compared to money markets.”

All three funds have an expense ratio of 4 basis points.

Vanguard: Hoovering Up All the Dollars

Vanguard crossed the $2 trillion mark in U.S.-listed ETF assets under management earlier this year. VettaFi’s Vice Chairman Tom Lydon called Vanguard “the Hoover of the ETF industry” for how it’s vacuumed up investor dollars.

“They are just rock solid,” he said. “They have so many choices. They’re low-cost and always very, very dependable.”

Vanguard’s CEO Tim Buckley said at Exchange 2023 that the firm’s goal is “to make sure we’re producing the top-performing funds and ETFs out there.”

“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” he added. “And if you do that well and you can keep improving it, you’ll create value into the future.”

For more news, information, and analysis, visit the Fixed Income Channel.