It's among the most popular tools available for maximizing after-tax returns. But unbeknownst to many investors, the practice of harvesting losses to offset capital gains also comes with some pretty sizable downside risks.
Some say the benefit of tax-loss harvesting is overstated, that the net effect of selling securities that are down and buying them back really just amounts to a tax deferral for most.
Others maintain that the cumulative effect of harvesting losses year after year can inadvertently subject investors to a higher capital gains rate later on, which negates any savings and then some.
And then there's the risk to your return, the opportunity cost of taking your money off the table when a stock you wish to own is temporarily down.