Most people think about tax planning just at year-end, but anytime there are significant pullbacks in the market, we think there is an opportunity to rotate into other strategies and book a loss.
The saying “Don’t judge a book by its cover” can be applied to ETFs when discussing trading volume and liquidity. Oftentimes investors will rule out ETFs because they don’t meet a certain average daily volume threshold. This could eliminate from consideration hundreds of ETFs that could potentially be effective and impactful investment vehicles.
Most investors start concentrating on tax loss harvesting strategies at the time of year-end planning, and we see a lot of rotation late in the year on the backs of this. But market volatility offers opportunities to reposition throughout the year.
For financial advisors, this is the time of the year to talk taxes with their clients, especially if they have capital gains. Investors may be unaware that their mutual funds can have capital gains—even when the market is down.
When I see headlines along the lines of “Fixed income exchange-traded funds (ETFs) are not liquid and pose a risk to the system!” I can’t help but think, Stop the madness! Fixed income ETFs can actually add liquidity to the overall ecosystem and could potentially protect investors better than traditional investment structures.