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Is tax-loss harvesting worth it? Now more than ever

Wondering whether tax-loss harvesting is worth it? These tax-loss harvesting examples show how automation and volatility make a big difference.
9 minute read
March 14, 2023
Taxes on investments
Tax loss harvesting
Market volatility
Automatic investing

As a strategy for lowering taxes and potentially helping increase returns, tax-loss harvesting has been around for a while. But it's a time-consuming and complex process, so it hasn't held enough appeal—or expected payoff—for a lot of investors.

Recently, 2 trends are bringing tax-loss harvesting into the spotlight. First, advice services that use technology to automate tax-loss harvesting—like Vanguard Personal Advisor®—have made it more accessible for millions of investors. Second, because investment losses are necessary for tax-loss harvesting, the volatility of the past few years has made this tax strategy even more appealing.

Tax-loss harvesting can provide major value, but it depends on your specific situation as an investor. And there's no doubt that automation and volatility increase the potential rewards. Let's see how.

What is tax-loss harvesting?

Simply put, it's selling investments at a loss so you can use the losses to offset gains in other investments. You then take the money from the sale and use it to buy an investment that fills a similar role in your portfolio, so you stay invested in the market. This last point is critical—it's what distinguishes this powerful tax strategy from market-timing or locking in losses, and it provides the potential for increasing returns.

Beneath the simple explanation, there's a lot more detail and some important caveats. You can learn more about the process and its risks in our tax-loss harvesting explainer.

Read more about how to get ready for any market with tax-loss harvesting

Why tax-loss harvesting? 4 benefits

Save on taxes

When you file your income taxes, you can use tax-loss harvesting to reduce the amount you would have owed on capital gains. If you don't have gains in the same tax year, you can carry forward losses to use in future years.*

Grow your portfolio

If you reinvest your tax savings, they'll compound over the life of the investment, greatly increasing the financial benefit.

Reduce cost and risk

If you have assets you want to sell because of high costs or risks, tax-loss harvesting gives you a way to do so while potentially lowering a large tax bill.

Turn volatility into opportunity

Markets can't be controlled—but you can strategically control things like costs and taxes. 

The power of automation

When it comes to tax-loss harvesting, automation doesn't just make the job easier—it greatly increases the potential benefit.

Always on

An automated tax-loss harvesting service never has to take a day off, and it can easily check for opportunities across dozens of investments and hundreds of investment lots.

Minimized costs

Each tax-loss harvesting trade has a cost—but combining technology with the experience and knowledge of investment experts allows you to execute trades in the most cost-effective way.

IRS compliance

To claim losses, the IRS requires you to comply with a number of rules—something an automated service like Vanguard's can build into the technology.

3 real-life examples of tax-loss harvesting

Now to the numbers: We based these 3 case studies on real Vanguard Personal Advisor clients to see how similar investors could benefit from automated tax-loss harvesting.

The case studies illustrate how tax-loss harvesting could help you stay in control during volatile markets, lower your taxes, and ultimately increase your wealth.**

I needed to take some action. Now I feel more at peace, like I'm back in control.


The opportunity: Retirement is on the horizon, but volatility has threatened years of planning—and her $450,000 nest egg. She feels it's impossible to "stay the course" at a time like this.

After tax-loss harvesting: Kelly feels more assured—and has tangible evidence—that she's taking control back from the markets.

Tax losses harvested: $45,000

Potential tax savings: $6,750

Potential net increase in wealth: $11,160

I was facing a big tax bill in a terrible market. Tax-loss harvesting made a real difference.


The opportunity: His $2.7 million portfolio took a big hit in the markets, but he was also facing a huge tax bill from the upcoming sale of his businesses.

After tax-loss harvesting: Ken carried forward the losses until the sale of his businesses and then used them to offset the gain, greatly reducing his tax bill.

Tax losses harvested: $376,000

Potential tax savings: $70,688

Potential net increase in wealth: $99,338

I hate losing, and selling felt like losing. But ultimately I was able to turn it into a win.


The opportunity: He takes his investment success very personally, and it was painful to lose any of the $4.3 million in wealth he'd built. However, he loved the idea of turning these losses into a potential win.

After tax-loss harvesting: Tim is pleased to come out on top despite volatility and knows he's building additional wealth to pass on to heirs.

Tax losses harvested: $300,000

Potential tax savings: $71,400

Potential net increase in wealth: $118,045

Note: These case studies are based on real client scenarios that have been simplified for illustrative purposes. These are not actual client quotes, results, or experiences.

Volatile markets = a time-sensitive opportunity

Over the past few years, investors have experienced the kind of market environment that's generally rare in an investing lifetime. While it was painful, it can also present a huge opportunity for certain investors.

In a high-volatility environment like we experienced in 2022, our research shows an average benefit of 0.95% for investors who engage in automated tax-loss harvesting—equivalent to almost an entire percentage point of return.

In fact, for all 3 of our case study investors and thousands of others, the value was many times more than they paid for the full suite of financial advice and strategies available through Vanguard Personal Advisor.

The value of automated tax-loss harvesting can be much higher than the cost to access it

Source: Vanguard's research-based model for estimating the value created by tax-loss harvesting. The tax-loss harvesting impact is calculated as the difference in internal rate of returns (IRR) of the baseline portfolio without tax-loss harvesting and the portfolio with tax-loss harvesting. The impact shown is the median benefit. In a high-volatility environment the model's estimate ranged from 0.51% to 1.4% and during an average level of volatility, the estimate ranged from 0.08% to 0.83%. For more information on the model, see Tax-Loss Harvesting: A Portfolio and Wealth Planning Perspective, specifically regarding the equation (Equation 4) in Appendix 3.

0.30% is the fee for Personal Advisor Select™ and the approximate fee for a standard Personal Advisor portfolio. Depending on the investments chosen, Personal Advisor charges a maximum gross fee of 0.40%. See the article notes for more information on fees.

By tax-loss harvesting now, before a potential market rebound, you can capture your losses to use in future years with capital gains. To learn more and find out if it's right for you, talk to an advisor.

Take advantage of automated tax-loss harvesting through Vanguard Personal Advisor—included in the annual advisory fee.

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*By nature, tax-loss harvesting results in a lower cost basis for the investments you purchase with the sale proceeds, meaning more of your investment could be subject to taxes when you sell it later. So it's most beneficial and appropriate if you think your tax rate will be lower in the future. If it's not, you may end up deferring the taxes owed but not ultimately reducing them.

**In all cases, tax savings were assumed to be reinvested. Estimated growth assumes 5% annual return over 20 years. Harvest tax rates are 15% tax rate for Kelly (short-term tax rate), 18.8% for Ken (long-term tax rate and net investment income tax of 3.8%), and 23.8% for Tim (long-term tax rate and net investment income tax of 3.8%). For simplicity purposes, we show the calculations using one tax rate instead of any blended rate that would apply should capital gains exceed their current tax threshold. Liquidation tax rates are 0% for Kelly and Tim and 15% for Ken. 

Vanguard Personal Advisor Select and Vanguard Personal Advisor Wealth Management charge fees based on a tiered fee schedule (maximum 0.30%) calculated as an average advisory fee on all advised assets. Vanguard Personal Advisor charges Vanguard Brokerage Accounts an annual gross advisory fee of 0.35% for its all-index investment options and 0.40% for an active/index mix. These services reduce those fees by the amount of revenue that Vanguard (or a Vanguard affiliate) retains from your portfolio in order to calculate your net advisory fee. Note that this fee doesn't include investment expense ratios. Please review each service's advisory brochure for more fee information.

You should consult your plan fee disclosure notice for the applicable annual gross advisory fees that apply to your 401(k) account.

All investing is subject to risk, including the possible loss of the money you invest.

Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you consult a tax advisor before taking action.

Neither Vanguard nor its financial advisors provide tax and/or legal advice. This information is general and educational in nature and should not be considered tax and/or legal advice. Any tax-related information discussed herein is based on tax laws, regulations, judicial opinions, and other guidance that are complex and subject to change. Additional tax rules not discussed herein may also be applicable to your situation. Vanguard makes no warranties with regard to such information or the results obtained by its use, and disclaims any liability arising out of your use of, or any tax positions taken in reliance on, such information.

We recommend you consult a tax and/or legal advisor about your individual situation before engaging in tax-loss harvesting. The IRS website at also contains information that would be prudent for you to review about the consequences of engaging in tax-loss harvesting. The treatment of capital gains and losses, including the ability to offset gains with losses, is subject to current tax provisions. Please see IRS Publication 550, Investment Income and Expense for additional information. Tax-loss harvesting may also implicate state or local tax consequences for your particular situation.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.