Selling losing stocks for a tax boost? A new paper says beware these tripwires

A big selling point of the automated investing industry is that it gives Main Street investors low-cost access to sophisticated strategies once limited to wealthy clients of Wall Street banks. The technique increasingly mass pitched to ordinary savers: using computer-driven tax moves to eke out extra profits.

Selling losing stocks to generate losses that can offset winners, or tax-loss harvesting, is marketed as a daily ritual by robo-advisors from Schwab to Wealthfront. An algorithm scans an investor's portfolio each day in search of shares that have declined and sells them. The losses are used to offset taxable investment gains or other income. Unused losses never lapse: Up to $3,000 — per transaction, so cumulatively, a multiple of that — can be rolled over for reducing taxes on gains in future years.?

The more frequently losses are intentionally taken, the bigger the opportunity to scrape out some extra profit in a retirement portfolio, the industry's pitch suggests. The technique is now cast as akin to brushing your teeth daily (technically, having your teeth brushed for you), not cracking open a fine bottle of wine.

Not so fast, according to recent research.

Read: Selling losing stocks for a tax boost? A new paper says beware these tripwires

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