‘Tis the season for tax loss harvesting

The exuberance of equity markets in 2025 means year-end trading could open wider-than-normal price dislocations, says Chris Reynolds of Investment Planning Counsel.

Reynolds said attentive investors should be able to spot some unique buying opportunities as the season for moving money ramps up.

“You’re seeing some volatility right now in the marketplace, and a lot of that is due to tax-loss harvesting,” he said. “I would say that, because of the year we’ve had, it seems to be a little bit more pronounced than it has been in past years.”

Speaking on the Soundbites podcast this week, Reynolds said tax-loss harvesting is a popular and valuable strategy with financial advisors at year end.

“A good financial advisor looks at all their clients with large open money positions and utilizes tax losses whenever they can,” he said. “As good as the market has been, there’s still some losses out there.”

Reynolds said the market’s dramatic rise in 2025 owes much to the infrastructure build-out for AI — a technology that has yet to be market tested.

“Most of that gain has come from a multiple expansion, not necessarily an earnings expansion. Whenever that happens, it means your multiple’s going up on anticipation that the earnings will go up with it. If those earnings don’t follow, that becomes way more risky in your portfolio,” he said.

“Valuations are high right now, and it’s always a good time to take money off the table when valuations are high.”

He suggested there are plenty of good names to be found in the S&P 500 that aren’t part of the Magnificent Seven.

“There’s other companies who haven’t had the same kind of run in their pricing, and are great franchises, great brands, great businesses with growing earnings that have been ignored by the marketplace.”

Reynolds said financial advisors need to be cautious in the face of euphoria, and keep their clients’ risk tolerance in mind.

“Go back to your clients. Look at their risk tolerance. I’m not saying take huge amounts of money off the table, but make sure your allocation is what the client originally wanted.”

Reynolds said the current moment is proving to be a great time to be in the financial advice business. Strong markets are driving great returns, the intergenerational transfer of wealth is putting more money into play, the complexity of markets is driving people to seek professional advice and industry consolidation is reducing the number of competitors on the landscape.

“The advisors who are left and the advisors who are doing a good job are just gaining market share,” he said.

He encouraged financial advisors to simplify their businesses — most notably to create just three kinds of portfolios: balanced, growth and income.

“What I see is [that] advisors have a different portfolio for every client in their bay. How can you possibly manage that?” he said. “That complexity leads to errors on administration, leads to KYC misadjustments, client unhappiness, lack of oversight. All it does is cause problems, whereas consolidating and simplifying your business will only benefit you.”

He said the watch word of most financial advice firms should be “simplify.”

“No one ever got in trouble by making their business too simple,” he said.

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.