The 2022 calendar year was a pretty eventful period of fiscal activity here at Impersonal Finances DOT COM. We saw our net worth plummet and recover slightly and then plummet some more (as did most investors), joined a legion of fellow wannabe Boomers in the bond market, got rugged by some crypto shills, and now finally, mercifully, it’s time to lock in some losses and Tax-Loss harvest our way to positivity. Tax-loss harvesting is a great way to turn a negative into, well, a realized negative. But also, through the power of psychological persuasion, a positive.

Tax loss harvest your way to positivity

Ideally, you’re never tax loss harvesting anything because everything in your entire portfolio is up every year. Unfortunately, it doesn’t always work out that way. Who knew? Sometimes you get a little out ahead of your skis when the market is ripping, and you find yourself riding those skis straight down into the red. It’s never fun to sell an investment at a loss, but that’s why the IRS gods invented tax loss harvesting–to allow us all to put a positive spin on our terrible investment decisions. Here at Impersonal Finances, we call it Tax-Loss ARKvesting, an opportunity to honorably discharge ourselves from Cathie’s Ark.

In layman’s terms, tax loss harvesting is simply selling your less-performing assets to offset any realized gains–be it those you’ve sold at a profit or simply any dividends you’ve received in a taxable account. If in one investment you’ve lost as much as you’ve gained in another, well then there’s no net capital gain for Mr. Tax Man to pilfer, is there? Additionally, you can offset up to $3,000 of ordinary income from your regular 9-to-5, so even those with only losing investments to show for themselves can get in on the harvest to avoid a marginal amount of taxation. It’s a lose-lose situation that’s also a small win.

Now is the time to tax-loss harvest

Like every village idiot, the plan for my ARK investment was sound decision for a long-term hold of at least five years into an ETF that had outperformed at a wildly unsustainable pace in an already frothy market. So, yeah, there were some flaws at the outset on this one. It’s a practical guarantee that my selling of ARKK–even under the guise of a prudent tax-efficient strategy–will mark the bottom for growth stocks. But it’s worth eating the loss if only to free myself from staring at the ARKK ticker in my brokerage account into the new year. Plus, the tax benefits!

Believe it or not, sometimes it does make sense to make emotional decisions with your investments, if in doing so you relieve stress and re-allocate those funds into something that helps you sleep at night. In my case, there’s no fluffier pillow to lay my head on than those trusty old index funds.

Reflections on 2022

For most young-ish investors–if I can still get away with categorizing myself as such–2022 will go down as the first negative net worth year of our investing lives. As a long-term saver, you reach a point where your net worth is ultimately determined more by the market than it is your paycheck. As such, a 20% yearly loss in the portfolio will impact that number more than the direct deposit you see every other Friday. Separate from that, and while less of a loss in terms of real dollars, it’s the 80% losses in the speculative portion of a portfolio that tends to take the largest emotional toll.

Speaking personally (even if it runs counter to my brand), it’s been a year of internalizing poor decisions on the periphery of my portfolio, evaluating my relationship with money, and learning lessons I already thought I knew. Experience is and always will be the best teacher. Time will tell if I’ve been a good student.

Happy harvesting, or again as in my case, happy ARKvesting!