Wednesday, December 29, 2010

Tax Loss Harvesting

Tax loss harvesting refers to an investment strategy whereby the portfolio manager sells the worst performing stocks in the portfolio to crystallize capital losses to offset any realized capital gains - thus reducing/minimizing tax liability. The strategy also imparts a sense of sell-discipline too, thus the portfolio manager can reallocate the proceeds into securities with more favorable characteristics as dictated by their investment style and strategy.

Synonyms: Tax minimization, Tax sales

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