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ETF Specialist

Keeping an Eye on Leveraged ETF Tax Distributions

We don't expect this year to be as painful as last, but be careful.


It's never too early to start thinking about year-end tax strategies. Granted, taking losses on your portfolio last year was probably quite easy after the S&P dove from around 1,400 in January 2008 to under 800 in November, and perhaps you were able to realize more losses still in March when the S&P fell to 666. But anyone who held through all the turmoil or moved back into the market at the beginning of this rally has a more difficult task keeping the tax man at bay.

Particularly vulnerable are those of us who found some diamonds in the rough anytime between November of last year and April of this year. The rally that has continued ever since has turned junk into treasure, and I know I am particularly excited to part with several of my holdings--but not until I can get favorable long-term capital gains rates. The rub is that I'm nervous that many of my gains will diminish in the not-so-distant future, and my tax strategy will be executed in vain if my favorable tax rates come at the expense of sufficiently lower returns.

Paul Justice does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.