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Archive for Andy Rachleff

10 Things To Know About Tax-Loss Harvesting

Andy Rachleff- Tax Loss Harvesting

(SPECIAL NOTE: When You Open A Savings Account You Are Entered To Win $25,000 Each Week April 2, April 9 and April 16th 2020. View Link At Bottom)

For decades tax-loss harvesting was an obscure tool used to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012. Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.” Well, times have changed, and now just about every automated investment service offers a version of tax-loss harvesting.

However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting:

1. Tax-loss harvesting derives its benefit from the combination of the difference in tax rates applicable to ordinary income, long-term and short-term capital gains and the compounding of your annual tax savings.

Many people mistakenly believe tax-loss harvesting provides no benefit because you must ultimately pay a tax on the gain that results from the lowered cost basis achieved through tax-loss harvesting. What they fail to realize is the tax rate you pay on the ultimate gain is almost always lower than the rate at which you can benefit from your harvested loss. That’s because your loss creates value at the short-term capital loss rate and the ultimate gain is taxed at the much lower long-term capital gains rate. Our typical Wealthfront client’s combined short term federal and state tax rate is 33% vs. 24% for the long term rate. In addition, the savings you create from tax-loss harvesting can be reinvested and compounded until you withdraw all your money from your investment account. Partial withdrawals can first be taken from investments with low gains, which results in minimal taxes.
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Software Is Better At Most Jobs Than People

ANDY RACHLEFF

Software is far better at most jobs than people are. I realize that statement will make a lot of people uncomfortable, but it’s true. In just about every industry I know, software-based solutions provide greater functionality, convenience and speed than their human counterparts. There’s just no way people can keep up. That’s what prompted Marc Andreessen to make his famous assertion that “software is eating the world.”

Ability to Scale Leads to a Better Outcome
The primary advantage of software is it can serve one person, or a million of them, equally well. Today, computing power is so cheap that it’s essentially free. So it doesn’t matter how complex a piece of software is; you just throw more hardware at it as needed. In fact, the more people who use a piece of software, the more useful the software becomes, because it can use the data it accumulates to discover patterns that humans couldn’t possibly spot.

To appreciate software in action, think about Amazon. You may feel nostalgic for the old-fashioned book seller, but you can’t say she was better than Amazon. A bookstore owner might have known the preferences of a few of her best customers. But there is no way she could pick the ideal book for each of them, much less give them a thorough set of reviews, both positive and negative, for a title they are thinking about buying. And no one particularly enjoys jostling in line in a crowded store, as happens on the last day of holiday shopping. At Amazon, though, there is never a wait, and lines are never a problem.
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10 Things To Know About Tax-Loss Harvesting

Tax Loss Harvesting

For decades tax-loss harvesting was an obscure tool used to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012. Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.” Well, times have changed, and now just about every automated investment service offers a version of tax-loss harvesting.

However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting:

1. Tax-loss harvesting derives its benefit from the combination of the difference in tax rates applicable to ordinary income, long-term and short-term capital gains and the compounding of your annual tax savings.

Many people mistakenly believe tax-loss harvesting provides no benefit because you must ultimately pay a tax on the gain that results from the lowered cost basis achieved through tax-loss harvesting. What they fail to realize is the tax rate you pay on the ultimate gain is almost always lower than the rate at which you can benefit from your harvested loss. That’s because your loss creates value at the short-term capital loss rate and the ultimate gain is taxed at the much lower long-term capital gains rate. Our typical Wealthfront client’s combined short term federal and state tax rate is 33% vs. 24% for the long term rate. In addition, the savings you create from tax-loss harvesting can be reinvested and compounded until you withdraw all your money from your investment account. Partial withdrawals can first be taken from investments with low gains, which results in minimal taxes.
Read more