This strategy also takes advantage of realizing share losses to offset gains. In loss harvesting, fund managers deliberately sell securities because they have declined in value. That allows them to take advantage of losses and offset gains realized from other profitable investments. This may seem odd, since the purpose of investing in securities is to make money. But in a well-diversified portfolio, there are always some winners and some losers, and this strategy allows a fund to benefit from the sale of losers.
Investors can do their part to minimize capital gains taxes by avoiding trading or selling shares.
Of course, the best way to keep more of your money at work is to hold shares as long as possible, since you aren't taxed on capital gains until you sell the investment. Other Strategies to Consider When considering an investment in a fund, watch the fund's record date. When a fund makes distributions, its share price drops on the reinvestment date to account for the distribution. And you'll owe taxes on the distribution, even though you didn't actually make any earnings. In this case, consider investing the distributions you receive in another fund.