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> Wealthfront does daily tax loss harvesting on individual stocks Does WealthFront do anything at the individual stock level? My understanding from looking at

> Wealthfront does daily tax loss harvesting on individual stocks Does WealthFront do anything at the individual stock level? My understanding from looking at their landing page [1] is that they basically just allocate your money across a number of publicly traded ETFs: > How do you choose my investments? > We choose exchange-traded funds (ETFs) that track an index, such as the S&P 500 or emerging markets. Wealthfront chooses the ETFs with the lowest costs and proper tracking of their index. Also, you pay the expense ratios of those ETFs in addition to the fees that WealthFront charges: > What are the costs to invest? > We’re glad you asked. Our annual advisory fee is 0.25%. On average, you’ll also pay a low 0.06%–0.13% expense ratio. Companies who run investment funds charge this fee, and it comes straight out of that fund’s performance (you aren’t billed directly). Everyone who invests in ETFs pays this fee. I think would be fairly easy for any ETF investor to approximate WealthFront's tax-loss harvesting strategy in their own brokerage accounts. E.g. simply go in once a quarter and sell any lots of VOO for a loss where possible, and replace with an equivalent like SPY. [1] https://www.wealthfront.com/investing https://www.wealthfront.com/investing

erik_seaberg 6y ago
Above $100K, Wealthfront mixes individual stocks and ETFs. https://support.wealthfront.com/hc/en-us/articles/211005023-What-is-Direct-Indexing- https://support.wealthfront.com/hc/en-us/articles/211005023-... (I am a customer.)
MR4D 6y ago
In order to avoid wash-sale rules, you’d want them to be similar, but slightly different; such as VOO and VTI.
- freetime2 6y ago
  According to Investopedia at least [1], VOO and SPY are not considered substantially identical by the IRS: > For example, if an investor sells the SPDR S&P 500 ETF (SPY) at a loss, they can immediately turn around and purchase the Vanguard S&P 500 ETF. > The rationale is that the two S&P 500 ETFs have different fund managers, different expense ratios, may replicate the underlying index using a different methodology, and may have different levels of liquidity in the market. Presently, the IRS does not deem this type of transaction as involving substantially identical securities and so it is allowed, although this may be subject to change in the future as the practice becomes more widespread. [1] https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp https://www.investopedia.com/terms/s/substantiallyidenticals...
  - Thorrez 6y ago
    I wonder where that page gets its information. Its own quote links to an IRS document that doesn't seem to mention this case. Other places online recommend against it. >There has been no IRS ruling on whether ETFs from two different companies that track the same index are considered substantially identical. https://www.fidelity.com/learning-center/investment-products/etf/tax-rules-for-losses-etfs https://www.fidelity.com/learning-center/investment-products... >Investment advisors and tax planners recommend against selling an index mutual fund from one fund company and buying another index fund tracking the same stock index from another mutual fund company. https://finance.zacks.com/substantially-identical-mutual-funds-5850.html https://finance.zacks.com/substantially-identical-mutual-fun... >And while arguably swapping from index funds like SPY to IVV are almost certainly a wash sale abuse (or at least, a transaction that should trigger the wash sale rules) https://www.kitces.com/blog/the-wash-sale-problem-when-tax-loss-harvesting-almost-substantially-identical-mutual-funds-and-etfs/ https://www.kitces.com/blog/the-wash-sale-problem-when-tax-l... If you look at Wealthfront's own documentation, when they do tax loss harvesting with ETFs, they find ETFs that track similar but not identical indexes: https://research.wealthfront.com/whitepapers/tax-loss-harvesting/#5-wealthfront's_daily_tax-loss_harvesting_service https://research.wealthfront.com/whitepapers/tax-loss-harves...
    - freetime2 6y ago
      Yup it sounds like a bit of a gray area for now. I think for most people it probably comes down to the way your broker reports the transaction on your 1099. I.e. if my broker reports it to the IRS as a "covered" loss, that's probably what I would use when filing my taxes.

erik_seaberg 6y ago

Above $100K, Wealthfront mixes individual stocks and ETFs. https://support.wealthfront.com/hc/en-us/articles/211005023-What-is-Direct-Indexing- https://support.wealthfront.com/hc/en-us/articles/211005023-... (I am a customer.)

MR4D 6y ago

In order to avoid wash-sale rules, you’d want them to be similar, but slightly different; such as VOO and VTI.

freetime2 6y ago
According to Investopedia at least [1], VOO and SPY are not considered substantially identical by the IRS: > For example, if an investor sells the SPDR S&P 500 ETF (SPY) at a loss, they can immediately turn around and purchase the Vanguard S&P 500 ETF. > The rationale is that the two S&P 500 ETFs have different fund managers, different expense ratios, may replicate the underlying index using a different methodology, and may have different levels of liquidity in the market. Presently, the IRS does not deem this type of transaction as involving substantially identical securities and so it is allowed, although this may be subject to change in the future as the practice becomes more widespread. [1] https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp https://www.investopedia.com/terms/s/substantiallyidenticals...
- Thorrez 6y ago
  I wonder where that page gets its information. Its own quote links to an IRS document that doesn't seem to mention this case. Other places online recommend against it. >There has been no IRS ruling on whether ETFs from two different companies that track the same index are considered substantially identical. https://www.fidelity.com/learning-center/investment-products/etf/tax-rules-for-losses-etfs https://www.fidelity.com/learning-center/investment-products... >Investment advisors and tax planners recommend against selling an index mutual fund from one fund company and buying another index fund tracking the same stock index from another mutual fund company. https://finance.zacks.com/substantially-identical-mutual-funds-5850.html https://finance.zacks.com/substantially-identical-mutual-fun... >And while arguably swapping from index funds like SPY to IVV are almost certainly a wash sale abuse (or at least, a transaction that should trigger the wash sale rules) https://www.kitces.com/blog/the-wash-sale-problem-when-tax-loss-harvesting-almost-substantially-identical-mutual-funds-and-etfs/ https://www.kitces.com/blog/the-wash-sale-problem-when-tax-l... If you look at Wealthfront's own documentation, when they do tax loss harvesting with ETFs, they find ETFs that track similar but not identical indexes: https://research.wealthfront.com/whitepapers/tax-loss-harvesting/#5-wealthfront's_daily_tax-loss_harvesting_service https://research.wealthfront.com/whitepapers/tax-loss-harves...
  - freetime2 6y ago
    Yup it sounds like a bit of a gray area for now. I think for most people it probably comes down to the way your broker reports the transaction on your 1099. I.e. if my broker reports it to the IRS as a "covered" loss, that's probably what I would use when filing my taxes.