4 ms·

What about wash sales? That seems like a big threat to this model

konne88 5y ago
We currently don't try to avoid wash sales, so they can happen indeed. That's not the end of the world though (wash sales are completely legal), it just means you can't do as much tax loss harvesting as you might like. Long term, you could imagine that our automation could buy and sell securities that are slightly different, so that you would get the full tax loss harvesting benefits.
- ramesh31 5y ago
  There's probably less than a hundred public securities that would have the liquidity and spreads needed to do this without wasting your money. If you're talking about making a sale with every debit card purchase, it's going to be impossible to avoid wash sales.
  - DavidPeiffer 5y ago
    The government hasn't really provided a definition of "substantially identical" for purposes of wash sales. Buying the exact same company is an identical security. Going from and S&P 500 index at one brokerage to another is a bit different. S&P 500 to a total stock market fund is quite different. If S&P 500 index funds and similarly broadly defined funds from each brokerage house are available and deemed "different enough", it could significantly increase the money moves available before encountering a "required" wash sale. I'm not familiar with the behind the scenes aspects of it, but it feels like there may be a clever solution out there that could augment some of the liquidity concerns you mentioned if you could batch the transactions together. E.g. Alice has $1,000, Bob has $1,000, and Charlie has $2,000. They all have a transaction on the same day. Alice and Bob were on $Illiquid_Fund_A, Charlie is in $Illiquid_Fund_B. Alice and Bob trade with Charlie and everyone goes about their day.
- zzt123 5y ago
  That sounds like a potential nightmare given that end of year is when a lot of spending happens. Add a large market downturn at the same time, and people could in theory end up shooting themselves in the foot financially.

We currently don't try to avoid wash sales, so they can happen indeed. That's not the end of the world though (wash sales are completely legal), it just means you can't do as much tax loss harvesting as you might like. Long term, you could imagine that our automation could buy and sell securities that are slightly different, so that you would get the full tax loss harvesting benefits.

ramesh31 5y ago
There's probably less than a hundred public securities that would have the liquidity and spreads needed to do this without wasting your money. If you're talking about making a sale with every debit card purchase, it's going to be impossible to avoid wash sales.
- DavidPeiffer 5y ago
  The government hasn't really provided a definition of "substantially identical" for purposes of wash sales. Buying the exact same company is an identical security. Going from and S&P 500 index at one brokerage to another is a bit different. S&P 500 to a total stock market fund is quite different. If S&P 500 index funds and similarly broadly defined funds from each brokerage house are available and deemed "different enough", it could significantly increase the money moves available before encountering a "required" wash sale. I'm not familiar with the behind the scenes aspects of it, but it feels like there may be a clever solution out there that could augment some of the liquidity concerns you mentioned if you could batch the transactions together. E.g. Alice has $1,000, Bob has $1,000, and Charlie has $2,000. They all have a transaction on the same day. Alice and Bob were on $Illiquid_Fund_A, Charlie is in $Illiquid_Fund_B. Alice and Bob trade with Charlie and everyone goes about their day.
zzt123 5y ago
That sounds like a potential nightmare given that end of year is when a lot of spending happens. Add a large market downturn at the same time, and people could in theory end up shooting themselves in the foot financially.