Dollars & Sense - Sell Low then Buy Low

If you ‘sell low and then buy low’ you may be able to produce a tax write-off. There are lots of axioms in the investment world. Here are a few: “Be a bull or a bear, but not a pig”. Another, “the trend is your friend”. Or “when you sell in desperation, you always sell cheap.” And of course “Buy low, sell high”. It seems to be counter-intuitive to human nature to buy stocks when the news is bad and sell when the news is good. Although most people say they are in for the long haul, statistics tell us something different. The average investor bails out of stocks in a mere 10 months and out of mutual funds in 2 3/4ths years. If you’re losing sleep as well as money, you may want to sell and at least use your loss to help save some income taxes next tax filing season. Long term investors who are looking at losses in a mutual fund could temporarily switch out of that fund and into a money market fund. Thirty days later they can switch back and preserve the tax write-off. It’s necessary to wait the thirty days in order to avoid what is called a “wash sale” which would negate the tax deduction.

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