Tax loss harvesting
Selling an investment that has fallen in value so the loss becomes real for tax purposes and can be set against realised gains, then reinvesting the proceeds.
A loss on paper does nothing for a tax bill. Selling turns it into a realised loss, which offsets realised gains for the year. In the United States, losses beyond the gains they cancel can reduce a limited amount of ordinary income each year, and whatever is left carries forward to later years, so a large loss is rarely wasted. The proceeds are usually reinvested at once, leaving market exposure broadly where it was.
The constraint is the wash sale rule. In the United States, buying the same security, or one substantially identical to it, within 30 days before or after the sale disallows the loss for that year and adds it to the basis of the replacement instead. The usual response is to reinvest in something similar but not identical, which holds the exposure and keeps the loss.
The mistake is counting the saving as permanent. Buying back in at a lower price lowers your cost basis, which means a bigger capital gains tax bill whenever the replacement is finally sold. What harvesting mostly does is move tax from now to later and shift it between categories, which is worth real money when the deduction lands at a high marginal tax rate and the future gain is taxed at a lower long term one, and worth very little when it does not. It applies only in a taxable account, because gains and losses realised inside a sheltered account carry no tax bill to offset in the first place.