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 But don't ask yourself why you didn't sell last Monday, before the
market fell almost 6 percent and had its worst week since the fall
of 2011. Ask yourself instead, now what?
When the U.S. markets open on Monday, none of us will know whether
this is a spectacular buying opportunity or the beginning of a
bloodbath that will push our retirements out until we are 85. Here
is how you can make money either way.
-- Maximize tax losses. Sell losing shares of stocks or mutual funds
that you own directly, outside of a tax-protected retirement
account. That enables you to lock in the loss that can net you
sizeable tax savings.
You can use your losses to offset any investment gains you have at
the end of the year and up to $3,000 in ordinary income. If you lost
a bundle, you can carry forward unused losses too.
Here's an example. Say you bought 100 Apple shares for $13,200 on
July 20. At yesterday's close, they were worth $10,500. Sell at that
price and lock in the $2,700 loss.
That will save you at least $560 in taxes if you use it to offset a
gain in a security you've held at least a year. But it can save you
much more - $756 off of your federal taxes in the 28 percent tax
bracket and another $200 or more in a high tax state - if you use it
to offset a gain in another short-term security, one you've held for
less than a year.
To maximize your losses, do this: Sell all of your long-term losers
- you can use them to offset gains and ordinary income. Sell
short-term losers more circumspectly: Sell them if you can offset
them by also selling short-term winners you've decided not to keep
owning, or if you have no long-term losers and would be happy with
the $560 in savings as in the case above. Note that you have to wait
a month to rebuy shares of a security you're selling for a loss, and
you can't sell securities you've held less than a month to take a
loss.
-- Match your portfolio to your promises. Maybe the big bull made
you lazy about selling stocks and stock funds. But if you have money
in the market that you'll need within five years - say to pay
college tuition or begin your retirement or make a house downpayment
- take it out now and tuck it away safely, even if your bank won't
pay you much to keep it there. Short-term money doesn't belong in
stocks, it belongs safe.
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-- Buy off of a list. Though all but 10 companies in the broad
Standard & Poor's 500 index fell in Friday's rout, that doesn't mean
that every company suddenly has a much worse outlook than it did a
week ago. If you know which companies and industries interest you in
the long term, it is better to buy them at post-selloff low prices
than high ones. If you are buying individual stocks, check factors
beyond their price, like sales growth figures and price-earnings
ratios, which offer a way to measure how expensive a stock really
is. Stocks are roughly 6 percent less expensive than they were a
week ago, though they could become cheaper still. If you have your
list ready, you'll be ready to pounce.
-- Keep perspective, and know yourself. Most bull markets are marked
by regular "corrections" - periods in which shares fall 10 percent
from their high. This long up market has been notably absent of
corrections - the last one was four years ago and we are in that
territory now. Stocks may just be pausing for a few weeks while
professional investors go on vacation and wait for a September
signal from Federal Reserve policymakers about where they see the
economy. Given that shares may fall further, and badly, or may pause
and rise again, don't make an all-or-nothing move based on the
market. Make it based on what you know about yourself.
If you are a very long-term investor who's been afraid to commit to
a costly market, this month may give you an opportunity to move more
money into stocks. If you haven't slept since Friday because you're
so worried about the 5.8 percent weekly decline that you can't
function, sell.
(Editing by Andrea Ricci)
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