This may be the only time of year that underperforming investments get any respect. After all, losers can save you money ... on your tax bill.
Try to make some time this weekend to pull out brokerage and mutual fund records and tote up the gains and losses you've realized for the year so far. Where do you stand? If you have more gains than losses, search your portfolio for "paper losses" -- investments that have declined in value (since you bought them, not simply from their high-water mark). Unloading a loser before year-end would allow you to offset some of those taxable gains.
Capital losses can offset capital gains dollar for dollar, and up to $3,000 of additional loss can be deducted from other kinds of income, such as your salary. Ironically, that means excess losses are extra valuable. Instead of offsetting long-term gains that would be taxed at 15%, for example, they can offset income in your top tax bracket -- as high as 35%.
What if losses -- including any unused losses carried over from 2003 (check last year's Schedule D) -- exceed your gains so far in 2004? That presents you with the opportunity to cash in some winners without upping your tax bill. If you want to move some money around in your portfolio or feel it's time to pull money out of stocks or funds that have been on a good run, you can sop up gains you score by the losses you've already incurred.
But don't sell just for tax reasons. You don't want to let the "tax tail wag the investment dog." But the possible tax rewards make this the perfect time to take a hard look at your portfolio.
GETTING STARTED
