Schwab Intelligent Portfolios March 29, 2018

    Following one of the least volatile years on record in 2017, the financial markets ran into a bout of turbulence in February 2018 that brought sharp declines for the U.S. stock market and the first market "correction" in two years. While markets are volatile by nature and turbulence is expected to occur from time to time, it can be jarring for investors and challenging to stay the course when those periods arrive.

    Having a solid financial plan and sticking with it through the inevitable periods of short-term volatility are among the keys to long-term investment success. But you aren’t limited to buckling up and gritting your teeth. You can take action to reap some potential benefit from volatility through a trading strategy called tax-loss harvesting—which can help defer current tax liabilities and leave you more money to invest and potentially grow over time.

    Tax-loss harvesting can help offset capital gains

    Within your taxable accounts, tax-loss harvesting allows you to capture losses by selling an investment that has declined in value. Those captured losses can then be used to offset realized capital gains from other securities sold during the course of the year. This is a powerful process that can reap benefits over time, but it's complicated and time-consuming to try to manage yourself.

    Thankfully, you now have access to this sophisticated service through Schwab Intelligent Portfolios®, which uses the power of technology to automate the process for you. The program is designed to capture losses for your portfolio by selling an ETF whose price has fallen enough to result in a loss of sufficient magnitude and reinvesting the proceeds in an alternate ETF in that asset class to maintain your long-term allocation.

    You can read more about how tax-loss harvesting works, including the tax implications and the IRS's "wash sale" rule.

    How Schwab Intelligent Portfolios clients have potentially benefited from tax-loss harvesting

    As Figure 1 shows, in February 2018, the number of tax-loss harvesting trades surged when markets became turbulent. While tax-loss harvesting trades occurred throughout 2017, the low volatility environment limited the number of tax-loss harvesting opportunities. That changed with the sharp rise in volatility, providing the opportunity to take advantage of the market decline through tax-loss harvesting trades. 

    Data is only representative of the time period shown and is not a guarantee of future tax-loss harvesting opportunities. Individual accounts may have experienced different trading patterns based on time in account, recent contributions or rebalancing, among other factors.

    Tax-loss harvesting can take advantage of market volatility

    Schwab Intelligent Portfolios automates tax-loss harvesting for you

    While financial markets are volatile by nature, prepared investors can take action to help make these inevitable fluctuations work for them. Sophisticated portfolio management services such as tax-loss harvesting may help defer current investment taxes and leave you with money that can be reinvested and potentially grow over time. Schwab Intelligent Portfolios offers automated tax-loss harvesting for taxable accounts with at least $50,000.

    Learn more about Schwab Intelligent Portfolios' tax-loss harvesting and rebalancing algorithm by reading our whitepaper.

    By David Koenig, CFA, FRM, Chief Investment Strategist, Schwab Intelligent Portfolios

    Tax-loss harvesting is available for clients with invested assets of $50,000 or more in their Schwab Intelligent Portfolios account. Clients must enroll to receive this service.

    The tax-loss harvesting feature that is available with Schwab Intelligent Portfolios is subject to significant limitations which are described on the Schwab Intelligent Portfolios website and mobile application (collectively, the “Website”) as well as in the Schwab Intelligent Portfolios disclosure brochures (the “Brochure”), and the IRS website at in light of your particular circumstances and its impact on your tax return. You should consider whether or not to enroll in tax-loss harvesting based on your particular circumstances and the potential impact tax-loss harvesting may have on your tax return.

    You should read the tax-loss harvesting disclosures on the Website and in the Brochure before choosing the tax-loss harvesting feature if you decide to enroll in Schwab Intelligent Portfolios. Neither the tax-loss harvesting strategy for the Schwab Intelligent Portfolios program nor any discussion herein is intended as tax advice. Neither Charles Schwab & Co., Inc. nor its affiliates, including but not limited to Charles Schwab Investment Advisory, Inc., represent that any particular tax consequences, benefits, or outcomes will be obtained.

    Please read the Schwab Intelligent Portfolios' disclosure brochures for important information, pricing, and disclosures relating to Schwab Intelligent Portfolios.


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