Tax-loss harvesting is often bandied as a no-lose way to reduce taxes. Unfortunately, there are many pitfalls and under certain circumstances could actually increase your tax liability. Paying a service like Betterment to increase harvested losses only really works in a few limited situations.
Sophisticated investors have been harvesting losses manually for decades to acquire tax benefits. Betterment and Wealthfront made harvesting losses easier and more efficient than ever since 2008. Betterment alone has reached $5 billion under management.
Personal finance bloggers tend to love tax-loss harvesting without much mention of risk. A few bloggers have expressed doubts over the whole process, but their numbers are few and their voices drown out by the scream of the crowd. Betterment’s affiliate program has caused concern positive reviews are biased. Betterment’s affiliate program has tightened for bloggers investing with the company and with published reviews due to recent SEC rule changes. As a result, many bloggers must end their affiliate relationship with Betterment or take down their reviews of the company.
The truth about TLH is not as clean cut as some would have you believe. Taxes and performance are two issues every investor needs to consider prior to investing with any company engaged in TLH.