Certified financial planner Peter Mallouk, president and CIO of Creative Planning, pointed out that transaction costs can take a toll on tax savings. By the time investors sell a stock — move into a (usually higher-cost) exchange-traded fund (ETF), deal with the spread and pay transaction costs — "you may have lost all of your tax savings," he said. "I think it's a very new topic … and many people end up in a worse place because they haven't thought through all of these … issues."
For his part, Ivory Johnson, CFP and founder of Delancey Wealth Management, said maintaining exposure while harvesting tax losses is key. "It's been my experience that most investors are averse to buying high and selling low ... so there's always the chance the stock [you're selling] will rebound," he said. Buying an ETF in a sector that mirrors the stock you've sold can help investors maintain proper exposure.
"If it [the sold stock] does rebound, you've got the tax loss harvested that you can induct against other gains, but you also have exposure in the same sector," Johnson said.