Tax Loss Harvesting & Standby Substitutes

May 21, 2008

Richard Shaw (QVM Group) submits:

The practical challenge when tax loss harvesting is maintaining a continuous asset class exposure at target levels without time gaps, while avoiding penalties under the IRS Wash Sale Rule (IRC Section 1091).

The problem with time gaps is that significant
market moves can occur in the 30-day waiting period of the Wash Sale
rule, which would prevent the portfolio from achieving the risk and
return expectations on which the portfolio asset allocation was
designed.

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