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Comment by anonu | Hacker News Reader

Your ETF fund manager can buy and sell within an ETF structure, tax free. This beats any high turnover tax loss strategy.

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You have it backwards. If you directly replicate an ETF by buying stocks directly, you can capture the loss as soon as one stock goes down (and buying a share of something equivalent to stay approximately indexed). In the ETF, you only get a tax loss if the whole ETF has gone down. If no stock goes down, you don't have to sell, same with an ETF. For tax efficiency, direct indexing is superior than an ETF. This means you have to keep injecting money into the fund to keep the portfolio properly allocated (ie, you must avoid selling stocks that have gone up).

> buying a share of something equivalent

Wouldn't that be a wash sale, and thus fraud to claim the loss as a tax deduction?

I believe you and the prior posters are using different meanings for the word equivalent.

Buying the same asset under a different name (say, packaged under a different ticker on another exchange) would be a wash share.

Buying a truly different underlying asset in the same sector/region which has 99.9% correlation with the original asset you held would not be a wash sale.

> 99.9% correlation

I think that's either an exaggeration or exceedingly rare.

What you're saying is correct. But you're misunderstanding what I'm saying above. Within the ETF, a fund manager can trade (if they use the creation and redeem mechanism correctly), and there is no tax consequence to the fund or the investor.

I am suggesting that that benefit is far superior than any tax harvesting if you are directly indexed, etc...

What ETFs do this?

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