It’s early April 2020, with the Coronavirus inspired market meltdown well under way. The broader US market (the S&P 500) is down almost 30%! Clients and friends are asking me, “Is this a good time to sell my investments?”
To be a good investor, one must learn to think logically. Buying or selling emotionally always leads to poor investment results. There’s a quote I heard that applies well in times like this – “Volatility creates a temporary loss that only a nervous investor can make permanent”
Think Long Term
Remember that investments are long term assets. Trying to pick the bottom of the market is a fool’s game. Missing the larger up days on the market has a huge impact on your eventual returns! Just sit this one out, waiting for the market to come back – as it always does. Unless…
There is one opportunity to get a guaranteed return on your investments! Guarantees only come from the government and the banks. One of those overpays for their guarantees! Here’s a tax strategy you might be able to use to your advantage.
If, in the past three years, you claimed a capital gain on your income tax return, then generating a capital loss now may be an option for you. Capital losses can be carried back 3 years against previous capital gains. You can get a partial or complete refund of the taxes paid as a result of those gains.
For example, if you had a previous investment gain of $10,000, and were in a 30% tax bracket, then you paid $1,500 in taxes for this windfall. You could get this money refunded by declaring a capital loss of $10,000 with this year’s taxes.
So, is it a good time to sell your investments? Possibly. Talk to your accountant or tax preparer if you think this might apply to you.
If you would like to discuss this with me, send me an email.