Is Sell Low, Buy Low a Strategy?

You’ve likely heard of the phrase “Buy Low, Sell High”.  Of course, we all want to sell our investments for more than we bought them for.  The expectation of profit is why investors take risk with their money.  So, if you made an investment that has not worked out and is at a loss, what might you do?  There can be an emotional urge to stick with a losing investment even when the future outlook may not be favorable.  Objectively, it may be in your best interest to sell the investment at a loss.  In many after-tax portfolios, we employ a strategy called “tax-loss harvesting”.

Tax loss harvesting is a strategic technique where investors sell securities at a loss to offset capital gains tax liability. By realizing these losses, investors can reduce their taxable income, potentially saving money on their tax bill. This approach is particularly beneficial in a volatile market, where fluctuations can create opportunities to harvest losses without significantly altering the overall portfolio.

After selling a losing investment, the proceeds can be reinvested in similar assets to maintain the portfolio's desired allocation. It's crucial to adhere to the IRS wash sale rule, which prohibits repurchasing the same or substantially identical security within 30 days.

The strategy intent is to substantially maintain the same portfolio allocation, while realizing tax losses, to seek a better after-tax rate of return.  Tax-loss harvesting doesn’t guarantee any outcome --- and this information should not be interpreted as tax advice, consult your tax advisor prior to using this strategy --- but you’ve likely heard the saying “nothing’s guaranteed but death and taxes”!

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