Investment Strategy

How cutting edge technology can enhance your wealth with tax savings

As a discerning investor, you understand the importance of preserving your wealth. Tax management strategies can help preserve returns in your portfolio by helping you save on taxes. Selling securities at a loss, or tax-loss harvesting, locks in capital losses that you can use to offset realized capital gains elsewhere on your balance sheet – and save on taxes that you would have otherwise paid on those capital gains.

Most investors think of loss harvesting towards year-end, or once a month to avoid triggering tax liabilities under the wash sale rule. However, you may not realize that it’s now possible to identify loss harvesting opportunities more frequently—as often as daily—and that doing so can potentially help you save even more on your tax bill.

J.P. Morgan Asset Management compared a daily vs. monthly approach to portfolio monitoring for tax-loss harvesting opportunities in individual stocks, by measuring the difference in tax savings¹ between the two processes over 16 different time horizons between 2018 and 2021. Each scenario started one quarter after the previous scenario, allowing to observe results that began at different points in the year and in different market conditions.

In the daily approach, the portfolio was reviewed on a daily basis and had the flexibility to realize losses when individual positions and the overall portfolio met agreed-upon loss thresholds. The monthly approach used the same thresholds, but only harvested losses every 31 days.

Daily was better: J.P. Morgan Asset Management’s analysis shows that reviewing your portfolio daily for tax-loss harvesting opportunities can yield, on average, about 30 basis points (bps) of additional annualized tax savings for clients compared to the monthly approach. Given the equity market’s natural, ongoing volatility, it’s intuitive that more frequent monitoring would result in incremental tax savings. This chart shows the results in greater detail.

Comparing tax-loss harvesting approaches

Our analysis found that daily monitoring for tax-loss harvesting opportunities consistently generated additional savings.

Source: J.P. Morgan Asset Management. Data as of 12/31/2023. The chart is shown for illustrative purposes only.

Maximizing tax-loss harvesting opportunities

Direct indexing –owning the individual securities that make up an index in a separately managed account—offers investors another avenue to potential tax savings beyond what is possible when they own an index-tracking ETF or mutual fund. The direct indexing structure offers superior tax-loss harvesting opportunities because losses can be realized at the individual security level, not just at the vehicle (ETF or mutual fund) level.

Historically, tax-loss harvesting has been a painstaking, time-consuming process. As a result, most investors and their teams reviewed allocations only following major market downturns or at the end of the year, when calculating capital gains taxes.

This task can now be automated: Cutting-edge technology can continuously identify tax-loss harvesting opportunities. This makes it much simpler to ensure that your portfolio is optimized for tax savings on an ongoing basis.

Not all providers take this approach, however. Some take a calendar-driven approach, looking for losses at a set time, such as at the end of the month or quarter. Others use a trigger-based approach—waiting to take losses until they reach a certain level—but will only trade on a monthly basis.

A continuous approach reviews accounts every day for tax-loss harvesting opportunities, realizing losses when the predetermined cost-benefit threshold is met—potentially multiple times during a month.

A robust process is critical to success

A continuous tax-loss harvesting approach can optimize the potential for creating tax losses while still delivering an investment experience similar to the index being tracked. However, this approach requires a diligent process that can:

Analyze the cost vs. benefit of every trade: Trading too early can realize a loss that may have quickly reversed into a gain. Finding the optimal threshold for realizing a loss prevents unnecessary turnover in the portfolio.
Control for wash sale violations: Wash sale rules do not allow the same security to be sold and bought again within a 31-day period. Violations result in the loss no longer being eligible for tax purposes. A daily review can often generate opportunities to harvest losses more than once a month, so having a systematic way to monitor the potential for wash sale violations is critical.
Incorporate up-to-date pricing data: Daily opportunities that use pricing data from the start of the trading day provide a more accurate indication of whether a loss should be taken than data from the previous day, which may not factor in news from after the market close.

Direct indexing improves the potential of tax-loss harvesting by increasing the frequency of the process and the volume of opportunities. A daily approach goes a step further. By taking advantage of daily volatility across a larger opportunity set, investors may get more in potential tax savings and keep more of what they earn.

¹Tax savings is measured as the amount that a tax bill could potentially be reduced by harvested losses, as a percentage of the amount invested in the tax-loss harvesting strategy.

Important Information

Tax loss harvesting may not be appropriate for everyone. If you do not expect to realize net capital gains this year, have net capital loss carryforwards, are concerned about deviation from your model investment portfolio, and/or are subject to low income tax rates or invest through a tax-deferred account, tax loss harvesting may not be optimal for your account. You should discuss these matters with your investment and tax advisors.

All case studies are shown for illustrative purposes only, and are hypothetical. Any name referenced is fictional, and may not be representative of other individual experiences. Information is not a guarantee of future results.

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Technology can help investors enhance their returns by continually monitoring their portfolios for tax-loss harvesting opportunities.

Evelina Samson Executive Director, Portfolio Advisory Group

Published Jun 3, 2025

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How cutting edge technology can enhance your wealth with tax savings

Comparing tax-loss harvesting approaches

Our analysis found that daily monitoring for tax-loss harvesting opportunities consistently generated additional savings.

Maximizing tax-loss harvesting opportunities

A robust process is critical to success

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