[0:00] it's Brian Preston the money guy so how
[0:03] does this play out in the real world and
[0:05] before we talk about a strategy like a
[0:08] real life actual strategy you could be
[0:10] employing it's important to have some
[0:12] context you guys have seen this chart
[0:14] before but what this chart lays out for
[0:15] you is all of the bear markets and all
[0:18] the bull markets from 1942 all the way
[0:21] through this year uh the length of the
[0:24] of the market shows how long it lasted
[0:27] and then the the depth or the height of
[0:29] it shows how severe it was so what you
[0:30] can see here is that
[0:32] more often than not bull markets are
[0:35] substantially more severe in a positive
[0:39] way than bear markets severe sense of
[0:41] negative bull markets are awesome
[0:43] they're awesome more awesome than bear
[0:45] Mark but see that's just kind of a given
[0:47] more awesome than the bearers the
[0:48] gravity through which you experience a
[0:50] bull market way outpaces the gravity
[0:53] which you experience in a bear market
[0:54] and they tend to last for a lot longer
[0:57] of a period of time so even when you're
[0:59] going through periods of volatility like
[1:00] this it's important to remember that
[1:02] it's important to keep that archive in
[1:03] the back of your mind well that's why
[1:04] here's The Optimist take of this and
[1:07] Bo's already thrown out one of my slides
[1:08] but this is a way for me to put it back
[1:10] in for Daniel's benefit too is that I
[1:13] would we know that fortunately bull
[1:14] markets last much longer and happen more
[1:17] frequently than bear markets so I think
[1:20] that this puts a priority on the fact
[1:22] that when we do have that two out of 10
[1:23] years you want to be like a squirrel
[1:25] who's harvesting and putting a bunch of
[1:27] nuts to save for the winter because
[1:29] there will be really good gains in the
[1:32] future future so the harder you work
[1:34] while things are cold outside you know
[1:37] and you're harvesting and just say that
[1:38] you will see that the the benefit for
[1:41] this for many years in the future you
[1:43] are filling up that Silo of losses
[1:45] that's one of the things I'm telling you
[1:47] me personally I'm talking about my
[1:49] personal portfolio plus what we do for
[1:51] all of our clients I've done this at
[1:53] least twice this year because I take it
[1:55] very serious and we're gonna have an
[1:56] example of how that boom bust Cycle
[1:59] Works this is not a setup and forget it
[2:01] one and done this is something that you
[2:04] actually can use this strategy
[2:05] throughout the volatility of the market
[2:07] so that as we come through this
[2:09] short-lived bear Market you will be able
[2:12] to hit the ground running and really
[2:13] have a really strong tax strategy for
[2:15] when things are good too but you got to
[2:17] be a financial mute you have to
[2:19] recognize that these opportunities don't
[2:21] happen all the time you can see in the
[2:23] chart that we just showed that bear
[2:25] markets don't happen all that frequently
[2:27] despite what the financial media might
[2:29] suggest to you so when we have these
[2:31] large drawdowns like what we're seeing
[2:33] this year it makes a lot of sense to
[2:35] capitalize on them it makes a lot of
[2:36] sense to be able to take advantage of
[2:38] them so let's do a real world
[2:41] live case study based on something that
[2:44] could have happened this year in the
[2:46] year 2022. so let's say that Jasmine has
[2:49] a hundred thousand dollars invested in
[2:51] an S P 500 Index ETF on January 1st of
[2:55] 2022. let's also assume this holding is
[2:57] held inside of our taxable brokerage
[3:00] account
[3:00] she decides that man this year has been
[3:03] volatile and I'm going to take advantage
[3:05] of loss harvesting so every time my
[3:07] holding drops by ten thousand dollars
[3:09] I'm gonna go Harvest those losses and if
[3:11] you look from January through September
[3:13] that occurred in February and then it
[3:16] occurred again in June so here's the
[3:19] Practical nature of what Jasmine did
[3:22] on February 23rd she sells her S P 500
[3:26] ETF to harvest a little over 11 000 of
[3:30] losses she then takes the proceeds from
[3:32] that sale
[3:33] and immediately buys a total market
[3:36] index ETF so as not to violate the wash
[3:39] sale rules they are similar but not
[3:42] identical well then if you remember uh
[3:45] she starts feeling pretty good second
[3:46] quarter started off pretty nice she's
[3:48] like oh wow this worked all I lost
[3:49] harvest the market started making money
[3:52] and then the shoe dropped and then it
[3:53] happened again and then the market in
[3:55] the second quarter continued to drop
[3:58] and so then she decides you know what on
[4:00] June 13th I have crossed over that ten
[4:02] thousand dollar loss mark again so now
[4:04] on June 13th what I'm going to do is I'm
[4:06] going to sell my total market index I'm
[4:09] gonna Harvest another 10 600 of losses
[4:13] and because it's been 30 days since I
[4:16] last did that transaction I'm gonna buy
[4:19] back into the S P 500 Index Fund now so
[4:22] I own the s p i got out of it I rode in
[4:25] the total Market it lost money too I
[4:27] harvested that loss now I got back in
[4:29] the s p 500. well I think that's
[4:32] interesting though if you just bring up
[4:34] the the visual again a lot of people the
[4:37] the naysayers or the the I'll just call
[4:39] them the trolls under the bridge that
[4:40] are going to come out in the comments
[4:42] section they'll say guys why'd you do
[4:44] all these trades why wouldn't you just
[4:45] wait until
[4:46] and just buy them while you do this
[4:49] horse harvesting one time in June when
[4:51] it was at the lowest and it's exactly
[4:53] what you shared and that's why I feel
[4:54] like I'm just giving the the commentary
[4:56] of answering the unspoken part is that
[4:59] we never know when markets are going to
[5:01] recover if you think about like the
[5:03] pandemic of what happened in 2020 the
[5:05] market got crushed went down to 35 but
[5:07] then shot off like a rocket we harvested
[5:10] losses in that downturn but then we hit
[5:13] recovery mode so fast that if you were
[5:16] trying to wait for the second or even
[5:17] the third so you would reached the dead
[5:20] bottom you might have missed it that's
[5:21] right so we don't remember we none of us
[5:23] have the crystal ball of knowing what's
[5:25] going on and when the full recovery
[5:27] because there might be some false
[5:28] positives or false recoveries that occur
[5:30] in any bear Market even in 2008 if you
[5:33] remember after the election season of
[5:36] 2008 the market actually closed up at
[5:39] the end of the year not for the year it
[5:41] was still down 37 but it was at a low of
[5:44] over 50 percent down but then it closed
[5:46] up and closed down 37 because it did
[5:49] have a 10 to 15 percent recovery right
[5:51] after the election cycle before we went
[5:54] right back down to the intested the
[5:56] bottoms of January through March of 2009
[5:59] it's not uncommon to have those fits and
[6:01] starts where things start look like
[6:03] they're getting better that's why you
[6:06] might do this multiple times in a year
[6:08] is because you think you're at a bottom
[6:10] you harvest losses we have a temporary
[6:12] recovery then we fall even lower you
[6:15] harvest again I know it's creating work
[6:17] for you but it shows up and it does
[6:20] create value over the long term pay
[6:22] attention to these cycles and so where
[6:24] is Jasmine net net so through October
[6:27] 12th of this year she's harvested 21 000
[6:31] than seven hundred dollars in losses now
[6:33] what those losses can do is they can
[6:35] offset capital gains this year if she
[6:38] all sets all of her capital gains they
[6:39] can offset three thousand dollars of
[6:41] ordinary income and anything left over
[6:43] can move into future years and in those
[6:45] future years it can offset capital gains
[6:48] or it can offset up to three thousand
[6:49] dollars of capital losses I mean of
[6:51] ordinary income a lot of people don't
[6:53] really say well I don't want to harvest
[6:55] any more loss I've harvested plenty I've
[6:57] harvested plenty of harvested plenty
[6:58] remember bull markets last for a long
[7:02] time and you can have a down year where
[7:05] man it feels painful but the next year
[7:07] is pretty good and you can use those
[7:08] losses and the next year is pretty good
[7:10] you can use those losses the next it's
[7:12] not uncommon to be able to harvest
[7:13] losses in one year they can offset
[7:16] triggered gains for the next number of
[7:19] years you're basically getting to invest
[7:20] your portfolio tax-free which is a super
[7:23] super awesome thing to be able to do
[7:25] well it's not uncommon look I'm going to
[7:27] talk in reality here for from a
[7:29] financial planner is that for seven
[7:32] figure portfolios it's going to be a
[7:34] six-figure loss that you've harvested
[7:36] and you're like well why would I mean 3
[7:39] 000 is all I can offset are we really
[7:40] going to take a hundred thousand two
[7:42] hundred thousand dollars of of losses
[7:45] that we're just gonna carry forward yes
[7:47] yeah because there will be there will be
[7:49] some years in the future where you're
[7:51] gonna have distributions at year end or
[7:54] you have some big transaction yourself
[7:56] you're going to be so thankful that you
[7:58] had the losses to offset those gains so
[8:01] you you got to essentially experience
[8:03] the recovery without having to pay the
[8:07] taxes on all those distributions