Tax-Loss Harvesting: The Quiet Strategy Beating the Market | VIP Wealth Advisors

Lost money in the market? Good.

That might sound strange coming from a financial planner—but if you're playing the long game and using the right strategies, losses aren't just setbacks. They're opportunities.

Welcome to the Hidden Alpha Edition of our Boring Investment Strategy series—a deep dive into the proven, often-ignored techniques that quietly build wealth. Today, we're talking about Tax-Loss Harvesting.

Tax-loss harvesting is a strategy where you sell investments that have declined in value, then use those losses to offset capital gains or even reduce your ordinary income taxes—up to $3,000 per year.

Simple idea. Powerful outcome.

Here’s how it works:

1. Sell the Losing Investment
   You've got a stock, ETF, or fund that's in the red. Sell it.
   
   
2. Reinvest in Something Similar—But Not "Substantially Identical"
   To stay invested and avoid missing the market rebound, buy a similar (but not identical) security. This avoids the wash-sale rule, which disallows the deduction if you repurchase the same asset within 30 days.
   
   
3. Stay the Course
   You didn't change your investment strategy—you just made it more tax-efficient.
   
   
4. Rinse and Repeat
   This isn't a once-a-year move. You can harvest losses throughout the year, especially during periods of volatility.

The IRS wash-sale rule disallows the loss if you buy the same (or “substantially identical”) security within 30 days before or after the sale.

Don't: Sell your losing shares of ABC Tech ETF and buy the same ABC Tech ETF the next day.
Do: Consider switching to a different ETF or mutual fund that tracks a similar index but isn't substantially identical—like replacing a Vanguard fund with one from iShares or Schwab.

According to Vanguard and Morningstar, effective tax-loss harvesting can add up to +1.0% in annual after-tax return for taxable portfolios. That may not sound like much at first glance—but over time, compounding turns that into a massive win.

It’s alpha, but the boring kind.

Let’s be honest—most DIY investors hold onto losers out of hope or pride.

They don't want to "lock in the loss." But here's the truth:

If you're just sitting on losing positions, hoping they'll recover—you’re ignoring one of the cleanest legal tax strategies available.

We see it all the time: portfolios with unrealized losses just rotting away when they could be helping reduce tax bills.

• High earners with large capital gains
• Investors in taxable brokerage accounts
• Anyone facing a lumpy income year (like startup equity sales, RSU vesting, or business exit)
• Retirees doing Roth conversions and seeking to lower AGI

• During market volatility (which is basically all the time)
• Near the end of the year, for last-minute tax positioning
• After a big gain that you want to offset
• During portfolio rebalancing, to kill two birds with one tax-efficient stone

Tax-loss harvesting is not flashy. It won’t make headlines. But it’s the kind of strategic, rules-based move that separates professional-grade portfolios from the amateur hour.

It’s also part of what we call the Boring Strategy That Outperforms 90% of DIY Investors—a series of deliberate moves that compound quietly and predictably over time.

Don't just lose less. Lose smart.