“At a basic level, tax-loss harvesting is selling an investment for a loss, on paper, and using it to reduce your taxes,” says Filip Telibasa, a certified financial planner and owner of Benzina Wealth. “Losses can either be used to offset gains realized in other areas or to reduce up to $3,000 of your income.”

Tax-loss harvesting can be a good strategy to use in a volatile stock market, helping you take advantage of any losses you may experience.

“A volatile market is the best time to use tax-loss harvesting since there is a lot of movement and therefore opportunities to capture short-term losses,” Telibasa says.

In addition to saving you money on taxes, tax-loss harvesting can help to rebalance your portfolio.

“Your investments are out of balance when individual positions move in different directions. By selling positions at a loss, it helps to even things out,” Telibasa says.