Tax-Loss Opportunity?

Matthew Allgood |


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In recent years, the bond market's notable decline has left fixed-income investors facing a tough situation. Many bonds and bond funds currently sit at considerable losses. Waiting for these securities to recover fully may take an extended period, especially considering that bonds lack the same potential for substantial upward movement as equities.


One strategy gaining traction among investors is "tax-loss harvesting." This approach involves selling investments at a loss in non-qualified accounts to reduce tax liabilities in April 2024 potentially. Total return includes return from the underlying price change as well as return income distributions.  Bond funds, which primarily distribute returns through income distributions, often display price returns below their total return. This insight is key to identifying tax-loss harvesting opportunities.


Leveraging tactics like tax-loss harvesting can substantially aid clients. This method, involving the realization of tax losses, helps offset prospective gains. The resulting capital can then be redirected toward alternative investment avenues, like transitioning to diverse fixed-income allocations with less drawdown risk and promising superior yields. This approach can potentially boost clients' portfolios.


Tax-Loss Opportunity?


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Source: Bloomberg, Redwood. Data as of 11/20/2023. Date Range from 11/17/2018 – 11/17/2023. For illustration purposes only.



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Allgood Financial

Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss.  Past performance is not a guarantee of future results. The objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above.


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