Even as central banks keep interest rates on an upward trajectory, equity markets have shown surprising stamina. The S&P 500 has hovered near record highs, buoyed by relentless artificial intelligence investments and a rush of earnings season optimism. For investors with taxable accounts, this environment creates a fertile ground for strategic tax-loss harvesting a disciplined way to lock in paper losses, offset capital gains, and trim ordinary-income tax liability.
Why tax-loss harvesting matters in a rising-rate world
Rising Treasury yields have nudged long-term bond yields above 5 percent in the United States, while European sovereign spreads have widened, especially in France where the benchmark is approaching 4.9 percent. Higher rates can pressure growth-oriented stocks, but many tech and semiconductor names continue to rally on AI hype. This divergence means many portfolios now carry sizable unrealized gains next to lagging positions. The IRS permits a dollar-for-dollar offset of realized gains with realized losses, and any excess loss can reduce ordinary income by up to $3,000 per year, with the remainder carried forward indefinitely. Harvesting these losses before the calendar flips can prevent a larger tax bill when the gains are finally realized.
Direct indexing: turning a basket into a menu
Traditional index funds deliver instant diversification, but they lock investors into a pre-set collection of securities. Direct indexing swaps the fund share for the actual component stocks, granting the owner full control over each ticker. This granularity enables two powerful tactics. First, it makes real-time tax-loss harvesting possible because individual losers can be sold without disturbing the broader exposure. Second, it allows investors to build a capital gains budget a yearly plan that caps realized gains to stay beneath higher tax brackets or Medicare IRMAA thresholds. By pairing loss harvesting with strategic Roth conversions retirees can shift income into tax-free growth while keeping their adjusted gross income under critical limits.
Our practice routinely extracts 1%-1.5% of additional “tax alpha” from non-qualified accounts simply by rotating losers and winners in a disciplined fashion. Those percentages compound over decades, producing thousands of dollars of extra after-tax wealth. Moreover, harvested losses that are not fully used in a given year retain their character—short-term or long-term—and can be carried forward to offset future gains, providing flexibility for later withdrawals or long-term-care expenses.
Five underperformers to consider selling for tax-loss harvesting
Identifying the right equities to prune is as much an art as a science. Below is a short list of stocks that have lagged their peers, exhibit elevated price-to-earnings multiples, or sit in sectors that may see headwinds as AI spend migrates elsewhere. Each ticker is a candidate for a loss-realization trade before 31 December.
- Marvell Technology (MRVL) – Despite a recent fair-value uplift, the chipmaker still trades below its 12-month average and faces cyclical demand uncertainty.
- JPMorgan Chase (JPM) – The banking giant posted earnings above expectations, yet its stock price remains depressed relative to peers, offering a clean loss opportunity.
- Bank of America (BAC) – With net interest margins under pressure from higher Treasury yields, the share has underperformed the broader financial index.
- Goldman Sachs (GS) – Elevated valuation ratios combined with a recent slowdown in advisory fees make this a plausible harvest candidate.
- ASML Holding (ASML) – The Dutch lithography specialist’s earnings are solid, but its share price has slipped amid macro-uncertainty, creating a potential loss window.
Before executing any sale, confirm that the transaction will not trigger the wash-sale rule which disallows a loss if a substantially identical security is repurchased within a 61-day window. For most investors, the rule applies to stocks and ETFs, while digital assets such as crypto remain exempt under current law. A disciplined December review—ideally by the 15th—can lock in losses while still allowing ample time to re-establish exposure if desired.
In practice, the process looks like this: (1) run a year-end portfolio scan to flag positions with unrealized losses exceeding 10%; (2) cross-check each flag against the upcoming capital-gains budget; (3) sell the qualifying shares, documenting the trade for tax reporting; (4) optionally replace the exposure with a similar but not substantially identical security to maintain market exposure; and (5) record the loss carryover for future years. By integrating this workflow into a broader direct-indexing platform, retirees can automate much of the heavy lifting and keep their tax plan aligned with long-term wealth goals.
Ultimately, the synergy between direct indexing and thoughtful tax-loss harvesting offers a modest but reliable boost to retirement finances. Whether you are polishing a capital gains budget, preparing for Roth conversions, or simply aiming to lower your annual tax bill, a systematic harvest of underperforming stocks can turn market turbulence into a tax advantage.
