Last Updated 5 months ago

We have just finished celebrating Shavuot, the festival that, for those of us living in Eretz Yisrael, marks the wheat harvest. It is one of the most beautiful and ancient rhythms of the land: the rains of winter, the patient growth of spring, and at last the gathering of the grain when the season is just right.

I want to borrow that image of the harvest, because another kind of harvest is happening right now, far from the wheat fields of the Galilee, but no less timely. 

On Wall Street, it is called tax-loss harvesting, and it has quietly become one of the most talked-about strategies in the investing world. With both the American and the Israeli markets coming off a remarkable run, it is a conversation worth having.

Key Takeaways

• Tax-loss harvesting allows investors to sell losing positions and use those losses to offset capital gains elsewhere in the portfolio.
• After strong market gains in both the U.S. and Israel, investors may face larger capital gains tax exposure.
• Direct indexing can make tax-loss harvesting more flexible because investors own individual stocks rather than one pooled fund.
• Israeli investors may also benefit from this strategy, but the rules around timing, offsets, and substitutions require a careful review
• Tax-loss harvesting is useful, but it is not a permanent tax escape

A Few Extraordinary Years

The numbers speak for themselves.

In the United States, the S&P 500 returned roughly 25% in 2024 and another 18% in 2025, with that momentum carrying into 2026. Anyone who has been quietly holding an index fund for the last two years is almost certainly sitting on meaningful gains.

The Israeli market has been even more remarkable. After a strong 2024, the Tel Aviv 125 surged an astonishing 51% in 2025, dramatically outpacing every major global index, as foreign capital flowed back into Israeli equities and financial stocks led the way. In a period that brought enormous national challenges, the Israeli market has shown extraordinary resilience and rewarded patient investors handsomely.

That is wonderful news. But it comes with a familiar companion: Taxes. In the United States, long-term capital gains are taxed at up to 20%, with additional surtaxes on top. In Israel, the standard capital gains rate is 25%. The bigger the gain, the bigger the eventual bill.

So how do experienced investors keep more of what they have earned?

The Idea of “Harvesting” Losses

The concept is surprisingly simple.

Inside almost any diversified portfolio — even one that is performing beautifully overall — there are usually a few positions that have slipped. The stock you bought is trading below the price you paid. That paper loss is just sitting there, doing nothing for you.

Tax-loss harvesting is the practice of intentionally selling those losing positions, “locking in” the loss, and using it to offset the gains elsewhere in your portfolio. The result is that you reduce — and in some cases eliminate — the taxes you would otherwise owe this year.

Think of the farmer at Shavuot. He does not just gather the obvious sheaves in the center of the field. He pays attention to every corner, every row, every overlooked stalk. Tax-loss harvesting is the same instinct applied to a portfolio. Nothing of value should be left on the ground.

How It Works in Practice

The most common version of this strategy is called direct indexing. Instead of buying a single S&P 500 fund, an investor owns the underlying basket of stocks that make up the index — usually 200 to 300 of them. The portfolio tracks the index closely, but because the investor owns the stocks individually, the manager can sell the few that are down, capture the loss, and replace them with similar stocks so the overall mix stays intact.

The Wall Street Journal recently reported that more than $1.1 trillion is now invested in direct-indexing strategies in the United States. It has been a quiet revolution in how the wealthy manage their money.

There is also a newer, more sophisticated version known as a long-short tax-aware strategy. Without getting into the weeds, this approach uses a measured amount of borrowing to create both winning and losing positions, which produces more opportunities to harvest losses. More than $150 billion has flowed into these strategies in just a few years. It is more powerful but also more complex, more expensive, and riskier. It is not for everyone.

Does This Work for Israelis?

Yes — and this is important. The principle is universal.

Israeli investors who hold U.S. stocks, Israeli stocks, or a global portfolio can absolutely benefit from this kind of thinking. Israel’s tax authority allows capital losses to offset capital gains within the same tax year, and unused losses can generally be carried forward to future years. The specific rules around timing and substitution differ from the American system, so the strategy must be carefully tailored. Still, the core idea, harvesting losses to soften the tax bite on real gains, applies just as well in Tel Aviv as in New York.

For Israelis sitting on concentrated positions, employer shares from high-tech firms, or simply a portfolio that has grown nicely over the past few years, this is a conversation that could meaningfully change the tax picture.

A Word of Honesty

No strategy is magic. Harvested losses do not disappear forever; they lower your cost basis, which means a future sale may carry a larger gain. A market that keeps rising eventually leaves fewer losses to gather. And the more aggressive long-short versions involve borrowing and short-selling, which add real risk to the picture.

Tax-loss harvesting is a tool, not a miracle. Used wisely, in the right portfolio, at the right moment in the cycle, it can be very valuable.

A Final Thought

Shavuot reminds us that the harvest belongs to those who paid attention through every season, not only to those who showed up on the day of the gathering. The same is true of investing. The best tax outcomes go to investors and advisors who are paying attention all year long, not just in the final weeks of December.

If you need more information, please turn to your associate at PSA.

References:

Landman, M. G. S. R. N. (2026, January 1). TA-125 surges 51% in 2025 as foreign investors pour billions into Israeli stocks. Ctech. https://www.calcalistech.com/ctechnews/article/ehoa0yx7h

The S&P 500 is expected to rally 12% this year. (2026, January 9). Goldman Sachs. https://www.goldmansachs.com/insights/articles/the-sp-500-expected-to-rally-12-this-year