Tax-smart investment management1

The average Portfolio Advisory Services client has saved $3,900 in taxes per year,2 thanks to just one of our many tax-smart investing techniques (based on average account balance of $715,367)

Harvest tax losses

When one of your holdings has decreased in value it can be sold at a loss. While no one like to see losses in an account, these losses can potentially be used to offset gains in either your managed account or elsewhere in your portfolio. Known as tax-loss harvesting, this technique can be an effective way to temporarily defer taxes on your investments to a future year, allowing your money to stay invested and giving it greater potential to grow. In some cases, depending on your situation, you may be able to reduce or even eliminate these taxes. At Fidelity, we believe that tax-loss harvesting is more than a year-end exercise, so we look for opportunities throughout the year,1 which has the potential to produce better long-term investment results for our clients.


As the graphic shows, the periods of greatest market volatility, while often difficult for investors, often lead to the highest number of tax-loss harvesting opportunities. This can help increase after-tax returns when markets recover. Consider 2020,* when the stock market experienced higher-than-normal volatility. The investment team was able to harvest losses during this period, increasing clients' tax savings as the stock market posted positive returns for the year.


Market volatility may provide opportunities for tax loss harvesting in client accounts*


This graphic is intended to show how market volatility has the potential to create tax savings through tax-loss harvesting. Performance of the Dow Jones US Total Market Index between January 2022 and December 2022 is shown to illustrate periods of market volatility, which are indicated by boxes. For reference purposes, we’ve also shown how Fidelity has used tax-loss harvesting to help provide tax savings during periods of market volatility dating back to 2018. In 2018 the cumulative tax savings from tax loss harvesting was $554 million. In 2019 the amount of tax savings was $284 million. In 2020 that value was $1,236 million. For 2021 that value was $402 million. For 2022 that value was $3,596 million. Cumulative tax savings created by tax loss harvesting market volatility. The average annualized returns for the Dow Jones US Total Market Index as of 12/31/2022 is as follows, 1-year return -19.53%, 5-year return 8.65% and 10-year return 12.03%.


*Results will vary: 2020’s and 2022’s are not typical. In our analysis over the past 5 years, cumulative tax savings from tax-loss harvesting differed from year to year and have ranged from as much as the amount reported for 2022 to as low as less than a tenth of the amount reported for 2022.

The right axis and blue line represent the movements of the U.S. stock market as measured by the Dow Jones U.S. Total Stock Market Index as of 12/31/2022.

Methodology: The table and chart represent the cumulative total tax lot losses harvested, or potential tax savings, in all accounts in good order in Fidelity Wealth Services accounts managed with tax-smart investing techniques. Each tax lot loss within the population of accounts was evaluated. The specific tax rate applicable to the respective client account was applied to calculate the dollar loss of each tax lot, applying the client’s ordinary income tax rate to short-term losses and applying the client’s capital gains tax rate to long-term losses. All capital losses harvested in a single tax year may not result in a tax benefit for that tax year. If you have more capital losses than gains, you may be able to use up to $3,000 a year to offset ordinary income on federal income taxes and carry over the rest to future years. Results will vary. In our analysis over the past 5 years, cumulative tax savings from tax-loss harvesting differed from year to year and were as small as a tenth of the amount shown in the chart. Source: Fidelity Tax Account System as of 12/31/2022.

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