There are currently three families of exchange-traded funds (ETFs) that offer sector index funds:
The Select Sector SPDRs (Spiders) carve up the S&P 500 into industry sectors.
Vanguard recently introduced a family of ETFs that track Morgan Stanley’s indexes.
iShares use the Dow Jones Global Classification System to put together index funds.
One strategy, then, is to buy a specific dollar amount of an energy ETF, a health care ETF, and so on, so that you have a portfolio representing the entire market. ETFs generally have low costs and avoid passing through taxable gains.
Periodically, sell the tax lots that are at a loss and simultaneously buy a similar index fund managed by a different fund company to replace the position. This techniques generates tax losses while letting your winners ride. Net capital losses up to $3,000 per year can be deducted against other income while excess losses can be carried to future years, to offset capital gains.
