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Post April, many people enjoyed a well-deserved vacation from the stress, cost and downright annoyance of tax season. However, for investors looking to harvest losses to reduce the impact of capital gains, the cost of this year’s tax vacation could have been significant.
In bad times and in good, markets can be volatile. Consider:
- The S&P 500 reached a peak of 6,144 on February 19 but closed at 5633 on April 1, a decline of more than 8%.1
- It then fell a further 10% between April 2 and April 4 and continued its slide until reaching its lowest point on April 8.
- From its high on February 19, the S&P lost 18.9%, while the Nasdaq briefly entered bear market territory.
As we’re all too aware, losses have been plentiful of late, although thankfully somewhat short-lived so far. U.S. equities have regained most of their ground as specific tariffs, threats of tariffs and reciprocal tariffs have changed almost daily. Because manual approaches to tax-loss harvesting are, by definition, slow and laborious, the strategy was practical only for larger portfolios and on larger losses.
Shorter-term yet sometimes significant opportunities to harvest losses and improve after-tax outcomes were inaccessible for most investors. But today, technology (what we refer to as tax-tech) has dramatically changed the landscape.
By continually monitoring markets, a technology-driven, always-on approach enables tax-smart investors and their advisors to utilize the more frequent and sometimes smaller ebbs and flows within broad market movements for harvesting. The opportunity set, the cumulative benefit, and the potential to improve after-tax outcomes all increase.
The Other Upside to Up Markets
While the cause of recent volatility is far from common, volatility itself isn’t. Losses don’t just occur in down years — far from it. Intra-year market declines have averaged 14.1% over the last 45 years despite annual returns being positive in 34 of these years.2 By increasing frequency, tax-tech now enables investors to automatically and continually monitor markets for harvesting opportunities in bad times and in good.
In 2024, the S&P 500 was up more than 23% for the year, the second year of 20%-plus returns in a row. But within the year it fell:
- 5.5% between March 28 and April 19
- 8.4% between July 16 and August 5
- 4.2% between August 30 and September 6
Intra-year market volatility is normal, and it’s normal across markets, asset classes, and geographies. While it was a relatively quiet year compared to what we’ve seen so far in 2025, 55ip completed more than 277,000 harvesting trades for our clients in 2024.
Although the year was essentially flat for fixed income, the fourth quarter was especially active, as concerns about tariffs and rising rates sent the Bloomberg U.S. Aggregate Index down 3%. A continual, multi-asset approach can add value, often when it’s needed most.
For investors with direct-indexed portfolios, the benefits of tech-enabled, tax-smart investing can be amplified. For example, Magnificent Seven stocks averaged a return of 60% in 2024, while 98 stocks in the S&P 500 suffered double-digit losses. The winners and losers may change names, but dispersion between top and bottom performers is often significant.
Client-centric, Tech-enabled, Outcome-oriented
Delivering on the full promise of tax-optimized portfolios requires far more than occasional trades of stocks with differing performance. By identifying “the losses within the losses” and “the losses within the gains” tax-tech has changed what's possible and what's scalable.
Whether transitioning to new models or continually managing portfolios, today’s technology enables advisors to leverage typical and atypical market volatility to differentiate their services and help their clients mitigate the impact of capital gains taxes.
Endnotes
1S&P Dow Jones
255ip, J.P. Morgan Asset Management
Ben Hood, CFA, is vice president of platform management & strategy at 55ip, a fintech built to be the new standard for automated and personalized tax-smart investing. The firm sits at the nexus of investments and technology. Ben runs the team responsible for delivering continual improvements to 55ip’s advisor platform and enhancing operational efficiency.
The impact of a tax-loss harvesting strategy depends upon a variety of conditions, including the actual gains and losses incurred on holdings and future tax rates. The results shown in these materials are for illustrative purposes only and do not represent actual investment decisions.
The tax-loss harvesting service is available for an additional advisory fee and the results shown represent the net effect of the advisory fees but may not consider the impact of fees charged by others, including transaction costs or other brokerage fees. The information contained herein is subject to change without notice, is not complete and does not contain certain material information about the investment strategy, including additional important disclosures and risk factors associated with such investment and information about fees, trading costs and taxes.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
