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Harvesting losses does pose some risks. If you decide to take a loss now and don't buy a similar stock or fund right away, you might miss out on the run-up as that market sector or industry recovers. Also, "if you swap out of one asset, and you take a loss and reinvest the money in another asset, you're taking a different kind of risk," says portfolio manager Josh Weiss of Litman/Gregory Asset Management. "Even though you may be swapping into something similar, it doesn't guarantee the performance will be identical."
So weigh the tax benefits and investment risks before joining the harvest. If your losses are large, you may be able to sell a security without altering your investment strategy.
The holiday season is the time when people usually give thanks for how much they have received. But with the market's decline this year, you can also be grateful for smart ways to cut your losses.
Sharon Epperson is a correspondent for cnbc Business News. E-mail her at sharon.epperson@nbc.com