Unless you are invested in commodities or just cash, your portfolio is likely down so far this year. You are still probably losing money on your cash considering inflation is 8.5% (highest in 4 decades).

Note, if you are reading this, I might not be YOUR financial advisor. I’m definitely not your accountant. I cannot give blanket advice that applies to everyone if I don’t know your specific financial details.

I will, however, share one strategy to consider while your portfolio is down – harvesting or realizing capital loss in taxable accounts. Typically this is a strategy to do at the end of the year, but it is useful to start considering it early.

Note, I generally DO NOT ADVISE SELLING YOUR STOCKS AT A LOW. Certainly don’t sell out of fear. I really don’t recommend harvesting losses without the participation and guidance of your financial advisor. This is what we call “the big mistake”.

Here is an example to describe gains and losses:

If you invest $1,000 into shares of Company A and two years later it is worth $1,500, that is a gain of $500. In a taxable account, there are no taxes owed… unless you sell your shares. If you sold, you would report $500 of capital gains. You pay taxes on that gain at either 0%, 15%, or 20% depending upon your tax bracket.

Alternatively, during a downturn, your shares of Company A might have moved from $1,000 to $750. If you sell, you get to capture $250 of losses.

Here is the difference between harvesting losses and making the “big mistake”. You aren’t selling and leaving it in cash out of fear. If you do that, you will likely wait too long to reinvest your cash and miss out on gains. You reinvest the cash into a comparable investment for 30 days. Once 30 days have passed, you can reinvest the money into Company A. You wait 30 days because of the wash-sale rule, which you can read about HERE. This is another reason you want the participation of your financial advisor.

Up to $3,000 of your losses get to offset your earned income. That means less tax owed for you. Beyond that, your harvested losses get to offset/cancel out future gains you have.

This is a simple strategy to consider as a way to turn lemons into lemonade, but it is something to investigate with a professional and only do out of strategic planning… not the desire to change your portfolio’s risk profile.


Happy tax planning!