- Investors pulled a record $41.9 billion from equities last week to engage in tax-loss harvesting, Bank of America said Friday.
- Tax-loss harvesting is a strategy to lower investment taxes that involves selling securities at a loss to offset capital gains.
- BofA said investors in the past week also pulled out $10 billion from bonds.
Investors yanked a record amount of money from stocks last week as part of a financial strategy that lowers tax bills, Bank of America said Friday.
Outflows from equities boomed to $41.9 billion, the largest ever amount for “tax-loss harvesting,” said the investment firm said in its weekly Flow Show note, the last one to close out a bruising year for stocks.
Under tax-loss harvesting, investors sell securities such as stocks, ETFs, and mutual funds at a loss and then use that loss to offset any capital gains.
There are benefits to harvesting losses even if an investor didn’t have any gains, as the losses can be used to offset income or future gains, according to Fidelity.
BofA said investors in the past week pulled out $10 billion from bonds. They also took out $27.8 billion from passive equities and $17.2 billion from US value funds, setting new records for each.
And investors reduced cash holdings by $59.5 billion, the largest cut since February. Fund managers had ramped up cash levels in February and in March as they grew nervous about risks from Russia’s war in Ukraine, slowing global growth, and elevated inflation.
Investors preparing for the upcoming tax season were winding down what’s set to be a losing year for US stocks. The S&P 500 is staring at a nearly 20% slide, and the Nasdaq Composite, home to large-cap technology stocks, is off by more than 30%.
A surge in borrowing costs as the Federal Reserve fought a flare-up in inflation was among the major factors that drove equities into a bear market this year.