Page 22 - Investment Advisor May 2021

PORTFOLIO PERSPECTIVES

By Ginger Szala and Bernice Napach

Why Ark’s Cathie Wood Harvests Tax Losses

Year Round, and You Should, Too

A savvy advisor understands how to keep an eye on lowering a client’s tax

bill, says Vestmark’s Rob Klapprodt.

all Street phenom and Ark
Investment Management
Wfounder Cathie Wood
recently said in a monthly conference
call that during market drops, she will
buy up her favorite stocks — Tesla,
for example. However, Ark also sells
other stocks to “tax-loss harvest” dur-
ing that time.
Wood is a smart trader, but she’s also
a smart tactician when taking advan-
tage of market losses. She’s a perennial
tax-loss harvester — unlike most advi-
sors, who may wait until the fourth
quarter to harvest client portfolio losses rebounded, Klapprodt explained. That be tech-related (it may have a small
for tax reasons. said, there are a couple of factors to keep amount of Tesla). On day 31, they can
Advisors really should be “tax-smart” in mind: move it back into Tesla if desired.
and harvest losses throughout the year, Klapprodt says that instead of mak- Although Vestmark software will
as opposed to doing it seasonally, said ing hundreds of little trades that create send alerts to mark the end of the
Rob Klapprodt, co-founder and corpo- record-keeping headaches and increase wash sale period, “we don’t impose any
rate strategy officer, for Vestmark, a overhead, Vestmark encourages advi- investment decisions or [say] what users
financial software platform. The reason: sors to set a minimum trade size. should or shouldn’t be doing,” he said.
They would book more losses. “[Yet] we tend to see people parking
“We typically see a spike in tax-loss WASH SALE MANAGEMENT [proceeds] into some sort of ETF during
harvesting activities in Q4,” Klapprodt A wash sale is selling to generate a the wash sale period.”
said. “[This] makes sense as [they’re] loss and buying it back within a 30-day
starting to think about the year that just period. The Internal Revenue Service THE GOAL
transpired and how to minimize the tax doesn’t “deem a sale that generates a Klapprodt says the goal of tax-loss
bill that may be coming up.” loss as being a true sale if you turn harvesting is to “generate the desired
The problem is, security prices fluc- around and buy it back inside of 30 amount of losses in the client portfolio
tuate throughout the year. Think Tesla: days,” Klapprodt said. “Advisors have and just try to improve the client’s after-
It fell 21% from March 1 to March 8, to be mindful of that,” since they can’t tax alpha.”
but may end the year with a gain. That harvest that loss. By harvesting throughout the year,
won’t help a client’s year-end tax bill, To wait out the 30 days, they can advisors can generate more losses
but when Tesla was down, it was a “park” the amount generated from the than they would by waiting until Q4,
good time to sell and book those losses, sale into cash or buy a different stock or Klapprodt says. He also understands
he said. even an index fund within that period of that selling at a loss is counterintuitive, Wood photo: Courtesy of ARK Invest
Advisors are “able to exploit or get time without being dinged by the IRS. but adds that advisors need to be savvy
some benefit throughout the year of dips For example, if they sell Tesla during when it comes to tax issues.
in security prices,” versus waiting to the a dip, they can move those proceeds into For example, he cites GameStop,
end of the year, when prices may have the Nasdaq index or an ETF that might which ran up in January (to $347.51 on

20 INVESTMENT ADVISOR MAY 2021 | ThinkAdvisor.com