Gyroscopic Investing

If I sold some of my GLD to harvest losses for 2013, and immediately bought half as much UGL (a 2x gold ETF), would that be considered a wash sale?  What is the opinion of this forum?

I also have a 2x PP.  If I sold my UGL position, and bought 2/3rds as much UGLD, would that be considered a wash sale?

edsanville wrote: If I sold some of my GLD to harvest losses for 2013, and immediately bought half as much UGL (a 2x gold ETF), would that be considered a wash sale?  What is the opinion of this forum?

I also have a 2x PP.  If I sold my UGL position, and bought 2/3rds as much UGLD, would that be considered a wash sale?

Although I'm not a tax expert, I seriously doubt that would be considered a wash sale.
But I wouldn't do it anyway, as 2x ETFs do NOT behave like twice as much of the underlying asset. They have very unfavorable returns over any extended period of time.

edsanville wrote:I also have a 2x PP.

What does that mean?

There are funds which seek to replicate the daily return of another fund, usually an index, by a factor of 2, 3, 4, etc.  They do this by leveraging up as necessary, per investor dollar, and trading the underlying fund.

Libertarian666 is alluding to the fact that these funds do not recreate the long term trend of the underlying security, usually an index.  They only try to match the daily return x N.  With compounding, the long term return could be very different.  They also have higher expenses, because they have to buy and sell the underlying fund, pretty much every day.

Libertarian666 wrote:

edsanville wrote: If I sold some of my GLD to harvest losses for 2013, and immediately bought half as much UGL (a 2x gold ETF), would that be considered a wash sale?  What is the opinion of this forum?

I also have a 2x PP.  If I sold my UGL position, and bought 2/3rds as much UGLD, would that be considered a wash sale?

Although I'm not a tax expert, I seriously doubt that would be considered a wash sale.
But I wouldn't do it anyway, as 2x ETFs do NOT behave like twice as much of the underlying asset. They have very unfavorable returns over any extended period of time.

I agree that the 2x ETFs don't behave exactly like the underlying asset, but they are close enough for me.  I've looked at the graphs, and I'm pretty satisfied with the performance of my 2x and 3x permanent portfolios. 

Yes, I'm aware that they attempt to replicate the daily movements of the underlying assets, and not the long-term movements.  I'm not concerned with getting exactly 22% when the PP gets 11%, I'm just concerned with getting decent returns from my portfolio.  I've been investing with these ETFs for over a year now, and nothing spooky has happened yet.  I'm far more wary of stock picking than investing in a 3x S&P ETF, frankly.  But that's just me, your mileage may vary.

Lowe wrote: There are funds which seek to replicate the daily return of another fund, usually an index, by a factor of 2, 3, 4, etc.  They do this by leveraging up as necessary, per investor dollar, and trading the underlying fund.

Libertarian666 is alluding to the fact that these funds do not recreate the long term trend of the underlying security, usually an index.  They only try to match the daily return x N.  With compounding, the long term return could be very different.  They also have higher expenses, because they have to buy and sell the underlying fund, pretty much every day.

Thank you, Lowe.

Couldn't an investor do the same thing by just buying on margin?  You have $10,000.  You buy $20,000 of an index fund.  Voila!  Double of whatever percentage change it has (plus or minus).

If these 2X, 3X, etc. funds are:
buying and selling every day, and
have high fees, and
have manager discretion so they might do any number of weird things,

wouldn't simply buying on margin in fact be much better?

When you buy on margin yourself, you can lose more than 100%. Using one of the leveraged funds avoids that risk since the lowest it can go is to zero. And you also avoid margin calls that can blow up your life.

That said, I still wouldn't do either.

Pointedstick wrote: When you buy on margin yourself, you can lose more than 100%. Using one of the leveraged funds avoids that risk since the lowest it can go is to zero. And you also avoid margin calls that can blow up your life.

That said, I still wouldn't do either.

This is exactly the reason why I use the 2x and 3x ETFs.  My maximum loss is 100%, not 200%.  I would never buy anything on margin.

I will tell you the truth, edsanville, this is an investment product I've never heard of, and I am interested to learn more.

Under what conditions would a 2X ETF do badly?  What would happen to it?

Under what conditions would the ETF collapse or go bankrupt?

The fund managers are somehow assuming the risk of losing more than 100% of the principal.  They remove that risk from you and put it on themselves.  There must be a price you pay for them to do this.  What is that price?

How do they achieve a 2X return in the first place?  What are the mechanics of it?  Surely if it were that simple everyone convinced that the stock market is going to go up in the long term would buy and hold a 2X fund for 40 years instead of passing that up and holding a normal index fund.  Who doesn't want to increase their return?

How long have these things been around?  How have they weathered a variety of economic conditions in the past?

LC475 wrote: I will tell you the truth, edsanville, this is an investment product I've never heard of, and I am interested to learn more.

Under what conditions would a 2X ETF do badly?  What would happen to it?

Under what conditions would the ETF collapse or go bankrupt?

The fund managers are somehow assuming the risk of losing more than 100% of the principal.  They remove that risk from you and put it on themselves.  There must be a price you pay for them to do this.  What is that price?

How do they achieve a 2X return in the first place?  What are the mechanics of it?  Surely if it were that simple everyone convinced that the stock market is going to go up in the long term would buy and hold a 2X fund for 40 years instead of passing that up and holding a normal index fund.  Who doesn't want to increase their return?

How long have these things been around?  How have they weathered a variety of economic conditions in the past?

You can read their prospectuses somewhere like Google Finance.  They make "bets designed to double (or triple) the daily performance of the underlying asset."

My entire PP is in the form of ETFs.  All ETFs are abstractions of the underlying assets.  One could even argue that the assets themselves are just abstractions of wealth.  I don't consider it a huge risk to invest in these 2x and 3x portfolios, personally.  I can understand how a conservative investor wouldn't touch them, though. 

By investing in these, I am also increasing my portfolio diversity in the sense that each ETF is run by a different company.

The only way these funds could theoretically lose money, is if the underlying asset lost 50% (for 2x) in a single day.  I don't know what would happen to shareholders under those circumstances, but I doubt somebody would be knocking on my door demanding additional cash as an ETF shareholder.  To anyone's knowledge, has this ever happened before?

I've looked at the performance of these ETFs over the last few years, and they have approximated 2x/3x the performance of their underlying assets.  They have costs associated with them, but those costs have been dwarfed by the 2x/3x returns.  Will this continue into the future?  I don't know.  Nobody knows the future.

By the way, I consider my 2x and 3x investments to constitute my variable portfolio.  I'm not under the illusion that these are part of my genuine Harry Browne PP.

To the original question it appears GLD is not subject to wash sale rules.

"The tax cloud on precious metals has, if you will, a silver lining, says Robert Gordon, whose Twenty-First Securities Corp. specializes in tax optimization for investors. If IAU is a collectible rather than a security, he argues, then it’s not subject to the wash sale rule. If you got caught in this year’s bear market for gold, you should be able to sell a bullion fund and then immediately buy it back without losing your right to the capital loss deduction."

Article in Forbes here:
http://www.forbes.com/sites/baldwin/201 ... investing/

Can someone substantiate this claim? Selling GLD and re-purchasing is not considered a wash sale.

This was again discussed in the Wall Street Journal on 12/6/2013.

Search on: "A Silver Lining to Losses on Gold" if this link doesn't work

http://online.wsj.com/news/articles/SB1 ... +wash+sale

Flyer wrote: This was again discussed in the Wall Street Journal on 12/6/2013.

Search on: "A Silver Lining to Losses on Gold" if this link doesn't work

http://online.wsj.com/news/articles/SB1 ... +wash+sale

You need a subscription to read the article. What does it say?

Yes, inquiring minds want to know.

Try this:

http://stream.wsj.com/story/latest-head ... -2-399957/

The article doesn't make a definitive claim about the wash sale rule's application to GLD.

However, my opinion (not a tax attorney, etc.) is that there is very little risk that selling GLD and buying a different asset like GTU is going to be considered a wash sale.

GLD had a CUSIP and in my opinion loss harvesting GLD and repurchasing the same CUSIP would be considered a wash sale. We can all agree GLD for GTU would not be considered a wash sale.

I am having the same thoughts but in my case selling some DGP (2x) and replacing with GLD. I think I am pretty safe from this being considered a wash.

phil

Resurrecting an old thread here, but I figured this was better than making a new thread.

Right now I considering tax loss harvesting some gold ETFs.  I am assuming GLD is substantively equivalent to IAU and SGOL, and IAU to SGOL.

So I am thinking I am going to run into the wash sale rule, unless I avoid purchasing gold for 30 days after I sell the funds.  Does anyone know any ways to get around this?  Purchasing GTU instead?  Maybe there is something else.

taken from  http://www.tradersgame.com/articles/taxing-gold.html
Gold, silver and other metals in physical form

As mentioned above, gold, silver and other physical metals (along with vintage wines, stamps, artworks and antiques) are classified by the IRS as “collectibles”?. If you held the investment for a year or less, the gain is short term capital gain and is taxed at ordinary income rates. If you held the asset for more than a year, the gain is long term capital gain and is taxed at the special long-term rate for collectibles, currently 28%. The form of physical metal you sold is irrelevant. Gains on gold coins, bars, “gram gold accounts”?, and gold certificates are taxed as gains on the sale of collectibles. Even exchange-traded funds (ETFs) that own physical metals are taxed as collectibles.

The wash sale rules, that prevent you from taking a loss and then immediately repurchasing a security, do not apply to collectibles, so that you can a take a loss and then repurchase the metal immediately.

http://www.bogleheads.org/forum/viewtopic.php?t=62794
Collectibles are not subject to the wash sale rule. I doubt many have lost money in GLD recently but say you wanted to book a capital loss, you could sell GLD in the morning and buy it in the afternoon (assuming you wanted to continue holding).

consult your own tax adviser and see what he or she has to say

steve wrote: Collectibles are not subject to the wash sale rule. I doubt many have lost money in GLD recently but say you wanted to book a capital loss, you could sell GLD in the morning and buy it in the afternoon (assuming you wanted to continue holding).

consult your own tax adviser and see what he or she has to say

I've seen this mentioned before, and it has always intrigued me - with respect to physical gold.  Suppose that I wanted to tax loss harvest my coins.  And suppose my sister is willing to buy and sell with no spread.  Complete with receipts for market price, et al.  Can we just do a quick receipt exchange and be perfectly legal?

Mark Leavy wrote:

steve wrote: Collectibles are not subject to the wash sale rule. I doubt many have lost money in GLD recently but say you wanted to book a capital loss, you could sell GLD in the morning and buy it in the afternoon (assuming you wanted to continue holding).

consult your own tax adviser and see what he or she has to say

I've seen this mentioned before, and it has always intrigued me - with respect to physical gold.  Suppose that I wanted to tax loss harvest my coins.  And suppose my sister is willing to buy and sell with no spread.  Complete with receipts for market price, et al.  Can we just do a quick receipt exchange and be perfectly legal?

It is probably legal but will probably look weird to the IRS if they ever look at it. Note: I am not a lawyer and this is not legal or tax advice.

On the other hand, selling to a coin dealer with immediate repurchase will probably look okay, and some coin dealers may do that for a small fee for the paperwork, especially if it is too small a transaction to trigger IRS reporting.