Market swings can feel like a rollercoaster, but they can also unlock hidden opportunities. Recent volatility has left many investors uneasy, yet it opens the door to strategic moves like tax-loss harvesting—selling losing investments to offset taxable gains. This technique can lower your tax bill and boost your aftertax returns, strengthening your portfolio for the long haul.
Tax-loss harvesting is the process of selling investments that have temporarily declined in value to realize a capital loss. That loss can then be used to offset capital gains elsewhere in your portfolio—or up to $3,000 of ordinary income per year—helping reduce your tax bill and keeping more of your money invested. It’s important to note that tax-loss harvesting only applies to non-retirement investment accounts, such as individual or joint accounts. Retirement accounts like IRAs and 401(k)s are not subject to capital gains taxes, so gains and losses inside those accounts do not result in any current tax impact. Taxes in retirement accounts are generally only owed when you take distributions.
At Canty Financial, we utilize 55ip, a sophisticated portfolio rebalancing software, to streamline tax-loss harvesting and deliver smarter outcomes for your portfolio. This institutional-grade tool, typically unavailable to retail investors, continuously monitors your taxable accounts, identifying opportunities to capture tax losses whenever market conditions allow— automating a process that saves you time and money.
The key advantage is that clients can take tax losses while staying fully invested. When a loss is captured, 55ip helps us immediately reinvest the proceeds into a similar—but not identical—ETF, preserving your market exposure while generating a realized loss for tax purposes. This ensures you’re never sidelined in cash, all while generating tax savings to enhance your after-tax returns.
We leverage 55ip for:
At Canty Financial Management, our model portfolios are constructed using exchange-traded funds (ETFs) rather than mutual funds. This is because ETFs are generally more tax-efficient, helping reduce unnecessary capital gains distributions and giving you more control over when you realize taxable events.
In addition, ETFs typically have lower expense ratios compared to mutual funds. An expense ratio is a fee charged by the fund company for managing the fund. These fees are built into most investment vehicles—including ETFs, mutual funds, REITs, 401(k)/ 403(b) plans, and deferred compensation plans.
Tax-loss harvesting, when applied consistently and systematically, can deliver a meaningful long-term benefit. In fact, research indicates it can increase aftertax returns by an average of 1.08% annually—a concept known as Tax Alpha. That extra return, compounded over time, can make a significant difference in building wealth.
Tax-loss harvesting is particularly valuable for clients who:
Rather than trying to time the market, we stay focused on what we can control— implementing smart, proactive strategies to improve your long-term outcomes. Tax-loss harvesting, powered by 55ip’s advanced technology, is just one way we’re doing that behind the scenes.
If you’d like to review your portfolio or better understand how tax-smart strategies like this fit into your financial plan, we’re happy to help.
-Canty Financial Management
Bill Canty, CFP®, CPA, Financial Planner
Ed Canty, CFP®, Financial Planner
Joe Canty, CFP®, Financial Planner
Tina Alteri, CPA, Tax Advisor
Maureen Walsh, EA, Tax Advisor
