The year’s biggest stock disappointments may yet provide a bonus, if only as deductions. Read on, for a look at tax-loss harvesting, the week ahead in the economy, and a free video worth your time.
Dear Investor,
“Don’t get emotional about a stock. It clouds your judgment.” — Gordon Gekko, Wall Street (1987).
In finance as in love, letting go is never easy. Investors can form emotional bonds with their holdings, much like relationships with people. Sometimes your heart pulls one way, while logic tugs the other.
However, successful investing requires non-sentimental discipline. When a stock sinks and the numbers indicate it’s an inherently weak investment, don’t prolong the agony. Move on.
That said, even a loss can be put to good use. Now’s the time to consider tax-loss harvesting, a tactic that lowers your overall tax bill by selling losing positions to offset capital gains elsewhere. It’s a smart way to make the best of a bad trade, and one that comes into sharper focus as the year draws to a close.
Below, in addition to a look at tax-loss harvesting, we’ll also preview next week’s economic calendar and what it will mean for investors.
Cut Losses Before the Crowd
November has a reputation for calming the markets, as the turbulence of early autumn gives way to steadier prices. It’s also a timely opportunity for investors to review lagging positions and turn paper losses into strategic year-end advantages, on a dollar-for-dollar basis.
Begin by reviewing your portfolio with clear eyes. Which holdings have disappointed most this year? Which stories have run their course? November is the month to lower the boom. By selling a bit early, you act before the crowd begins its predictable year-end stampede.
If you still admire a company’s long-term prospects, you can always return later. The major caveat is the wash-sale rule, that small print in the tax code that forbids you from claiming a loss if you repurchase the same or a “substantially identical” security within 30 days before or after selling. It’s a rule designed to ensure that your loss is real, not cosmetic.
That substantially identical test can also apply to funds tracking the same index, so swapping one S&P 500 exchange-traded fund (ETF) for another could erase your deduction. Automatic dividend reinvestments can also complicate things by creating small purchases within that 30-day window.
You can use up to $3,000 in net capital losses each year to offset ordinary income. Anything beyond that carries forward indefinitely, waiting patiently for future gains to appear.
The tax-loss harvesting strategy only applies to taxable accounts. There’s no use attempting it inside an Individual Retirement Account (IRA) or 401(k), where gains and losses remain sheltered anyway.
As always, the paperwork matters. Keep precise records, especially if you have multiple accounts or mutual fund distributions arriving late in the year. A conversation with a tax professional can save both money and regret.
Turning losses into tax assets won’t make anyone feel like a market genius, but it does provide a quiet satisfaction, the sense of reclaiming some order from the year’s ups and downs.
Next Week’s Key Data (If the Lights Stay On)
The following reports are on the docket for next week. If the government shutdown persists, most of these reports are likely to be delayed or not available.
TUESDAY, NOVEMBER 11
• NFIB Small Business Optimism Index (Oct.)
Rising optimism signals healthy hiring and spending momentum, while a decline can foreshadow economic cooling.
THURSDAY, NOVEMBER 13
• Initial Jobless Claims (week ending Nov. 8)
Lower claims mean employers are holding on to workers; higher claims hint at softening demand. A key gauge watched by the Federal Reserve, as it ponders future rate cuts.
• Consumer Price Index, CPI (Oct. and YoY)
Inflation has remained “sticky” and an unexpectedly hot CPI reading could tank the markets. Another key barometer for the Fed.
FRIDAY, NOVEMBER 14
• U.S. Retail Sales (Oct.)
Strong retail figures would boost confidence in economic resilience; a weak reading would further stoke growth worries.
• Producer Price Index, PPI (Oct. and YoY)
Tracks wholesale prices, an early signal of inflation that later reaches consumers. Rising tariffs add upward pressure to PPI by increasing input costs for producers.
A Mixed Economic Picture
With the government’s regular dispatches on inflation and employment now on mute, investors, economists, and the Fed are left peering through a fog of incomplete data. Notably, another week of unemployment data was missing Thursday.
Still, the private sector is obliging with its own data. On Wednesday, ADP reported that private payrolls rose more than expected in October, a reassuring headline if one ignores the uncomfortable subtext of a job market losing altitude.
Then came Thursday’s report from outplacement firm Challenger, Gray & Christmas, which delivered a grimmer note: 153,074 job cuts in October, a 183% jump from September and 175% higher than a year ago. The technology sector accounted for 33,281 of those cuts, nearly six times September’s tally.
Those levels of job cuts are typically seen during full-blown recessions. October layoffs hit their highest level since 2003, a stark reminder that even low-firing markets can turn sharp and fast.
The picture, such as it is, remains mixed: faintly hopeful in parts, decidedly bleak in others. The only reliable data point right now is uncertainty…and that’s when you need our team of professionals the most.
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