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how does this work with taxes? When an ETF rebalances, there is no tax impact, but wouldn't there be a tax impact with this tool as you're individually managing
by itake 2y ago
how does this work with taxes? When an ETF rebalances, there is no tax impact, but wouldn't there be a tax impact with this tool as you're individually managing the stocks?
- jjmaxwell4 2y agoShort answer is yes there is a potential tax impact while rebalancing, but this is often a benefit due to the opportunities it presents to tax loss harvest, which we enable on accounts that are sufficiently diversified. With an ETF there is still a tax impact it's just shifted to the holder of the instrument who gets to decide when to sell or buy.
- itake 2y agoWith an ETF, I can hold it for 20 years, and the value keeps compounding. However, with this other method, each annual rebalance takes value out of the account. Unless I'm sure I can outperform an ETF with this active rebalancing, this tool would have worse outcomes. If I am trying to optimize my portfolio, it seems I should choose ETFs that are composed of the equities I want and use current income to attempt to rebalance (e.g. purchase underperforming equities, instead of selling high performing equities to buy underperforming ones). This tool seems like a worse strategy?