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.

FEDweek Newsletter
Veteran insight on your federal pay, benefits, career and retirement!
Share