Timely Tax-Loss Harvesting and Tax Efficient ETFs
Confidence Sprinkled with Doubt
Fed Chairman Jerome Powell did well last week to impersonate the Grinch who stole Christmas when he canceled two of the planned interest rate cuts for 2025 and reminded us he would hold rates higher for longer. The market responded quickly by selling off well over 3% – just as if computer algorithms reading the news wire were competing to be the first to exit and profitably buy the dip later. Four days later, the dip has already been substantially bought – the Santa Rally came to the rescue.
6 Months
Occasionally I write about market noise and the signal-to-noise ratio and many wonder what that really means and why it’s important. Noise comes from news events of all kinds and sizes. The Fed’s announcement last week was an excellent example of what may be called a “punctuated event.” It cannot be predicted, it must be endured, and it may (or may not) alter the market’s trend. Following the Fed’s announcement, the bears struck first with pessimism about slower economic growth, but the bulls responded the next day with their thanks for a better purchase price for the AI bull market they believe is just getting started.
6 Year
Timely Tax-Loss Harvesting
Tax-loss harvesting is all about proficiently offsetting realized or unrealized capital losses against your realized capital gains to delay or minimize your current capital gains taxes. There are a few scenarios to seriously consider. Note: Trades within your IRA or 401K accounts do not produce taxable events, but taking a distribution from them does.
For Realized Capital Gains: If you book realized capital gains by year-end, the strategic course of action is to examine your holdings in your taxable accounts and sell an offsetting portion of any of them that have unrealized capital losses, and buy something else that the IRS would not deem to be substantially identical. To avoid triggering the “wash sale” rule you must not buy anything substantially identical for 30 days or it will invalidate the tax benefits you seek.
For Realized Capital Losses: If you book realized capital losses by year-end, the strategic course of action is to examine your holdings in your taxable accounts and sell an offsetting portion of any of them that have unrealized capital gains and buy something else that the IRS would not deem to be substantially identical. To avoid triggering the “wash sale” rule you must not buy anything substantially identical for 30 days or it will invalidate the tax benefits you seek.
About the Loss Carry Forward: If you have a net realized investment tax loss, you can offset up to $3,000 of current-year income against it, and you can carry the remaining portion forward to offset both future capital gains and up to $3,000 of current income. Some might say that any amount of tax loss carried forward represents some of your capital that the IRS is sitting on without paying interest.
New Year Selling and Buying: While planning your tax-loss harvesting strategy, keep in mind that you are not alone. Consider the possible market dynamics on January 2nd if most AI stock investors made good money in 2024, but now think prices have become a bit stretched. Just when you are ready to take your profits and rotate into something more likely profitable you find the market has moved against you because a million other investors have the same idea.
Plan Well and Trade Carefully!
Here’s What We’re Doing to Help…
We’ve heard loudly The Five Things Investors Want Most.
The ETFs / Indexes below are planned for delivery in 2025, but
We’d Like Your Feedback Below to Confirm Our Plan.
ETFs Designed to Change Investing Forever
A Paradigm Shift occurs when an ETF becomes a self-contained tactical portfolio management system that can automatically pursue bullish upside momentum, pursue bearish downside risk avoidance, and execute its own trades. It enables the following:
- Within taxable accounts, the ETF gets long-term capital gains tax treatment if held more than one year. (Trades made internal to the ETF receive exchange-in-kind tax treatment.)
- Investors can finally skip the screen and go have a life!
1st ETF Index: EZPZ Markets DD
EZPZ Markets is a very simple portfolio of two simple indexes: the SPY Protection Plan Index and the Tech Without the Wreck Index. These two indexes simply employ Dual Defense to reduce the downside risk inherent within SPY and QQQ respectively. EZPZ illustrates that beating the market does not require owning speculative stocks – it is much better accomplished by avoiding bear markets.
EZPZ Markets: CAGR 22% – Rel.Risk 21%
2nd ETF Index: Sector Nectar DD
Sector Nectar is the epitome of sector rotation portfolio design. Its seven underlying momentum strategies provide exposure to the eleven primary GICS economic sectors and many specific industry groups through the ETFs of the major asset managers. Sector Nectar employs Dual Defense to reduce the downside risk of bear markets. Its seven selections together reduce overall volatility through their natural diversification.
Sector Nectar: CAGR 26% – Rel. Risk 27%
3rd ETF Index: Sweet 16 GigaMax DD
Sweet 16 GigaMax is a portfolio selection of 16 stocks from among the 160 largest capitalization stocks. Sixteen momentum strategies, each employing 10 stock candidates and Dual Defense, select their momentum leader, and are then allocation-weighted at 4.25% a piece in the index portfolio. The 16 momentum leaders are then further examined to identify the four top momentum leaders among them. These are allocation-weighted an additional 8% each in the index.
Sweet 16 GigaMax: CAGR 38% – Rel. Risk 32%
4th ETF Index: AI Domination DD
AI Domination is a portfolio of (a) an AI chip stock at 15% allocation, (b) an AI software stock at 15% allocation, (c) an AI chip ETF at 25% allocation, (d) an AI software ETF at 25% allocation, and (e) an AI energy demand ETF at 20% allocation weighting. Each selection is made from a set of candidates based on its momentum leadership and the application of Dual Defense. Stock candidates are limited to those having the largest capitalization within their industry.
AI Domination: CAGR 36% – Rel.Risk 34%
We’d very much appreciate your comments.
Please click the reply button and tell us what you’re thinking.
- Which of the ETFs are of most interest? Why?
- Which are of least Interest? Why?
- Do you have taxable investment accounts? Will these ETFs help?
- Do you know of anything better for taxable accounts on the market?
- If the ETFs perform as intended how aggressively might you invest?
Thank you for helping us make these ETFs as useful to you as possible!
Patience, not panic!
Rules, not emotion!
May the markets be with us!
Scott Juds
Chairman & CEO, SumGrowth, Inc.
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Disclaimers:
Investing involves risk. Principal loss is possible. A momentum strategy is not a guarantee of future performance. Nothing contained within this newsletter should be construed as an offer to sell or the solicitation of an offer to buy any security. Technical analysis and commentary are for general information only and do not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual. Before investing, carefully consider a fund’s investment objectives, risks, charges, and expenses, and possibly seek professional advice. Obtain a prospectus containing this and other important fund information and read it carefully. SumGrowth, Inc. is a Signal Provider for its SectorSurfer and AlphaDroid subscription services and is an Index Provider for funds sponsored by others. SumGrowth, Inc. provides no personalized financial investment advice specific to anyone’s life situation and is not a registered investment advisor. See additional disclaimers HERE.
