Does tax loss harvesting affect dollar cost averaging?

Answered on : 2024-01-24

Sources

[1] Dollar Cost Averaging and Tax Loss Harvesting

bogleheads.org

[3] How Tax-Loss Harvesting Works for Average Investors

investopedia.com

[4] Can Tax Loss Harvesting Improve Your Investing Returns?

forbes.com

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Answer

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Yes, tax loss harvesting can impact dollar cost averaging. Dollar cost averaging involves consistently investing a fixed amount at regular intervals. Tax loss harvesting, on the other hand, is the strategy of selling investments at a loss to offset gains and reduce taxes[2].

Here's how tax loss harvesting can affect dollar cost averaging:

1. **Tax Efficiency:** Neglecting tax loss harvesting may lead to missed opportunities to offset gains, affecting the overall tax efficiency of your investment strategy[4].

2. **Record-Keeping Challenges:** While dollar cost averaging helps lower the average cost of investments, tax loss harvesting introduces record-keeping challenges that need to be managed[3].

It's essential to strike a balance between these strategies based on your financial goals and tax considerations. Regular assessment of the impact on tax liability is advisable[8].