Dollars and Sen$e: December 2015

BY CHRIS HANLY

INVESTMENT CONSULTANT, GARY GOLDBERG FINANCIAL SERVICES

For most people, investing can boil down to a few basic rules and strategies: start young, save steadily, diversify, buy low and sell high. If you’re the kind of person who would prefer your retirement planning more or less take care of itself, those general guidelines will get you a lot of the way to building a nest egg you’re comfortable with. Scheduling purchases of your chosen funds every month or quarter, for example, will produce some good times and some bad times, but overall the trend should be higher, which is all that really matters over a multi-decade time horizon.

Investors who want to take a more active role in their holdings, though, should consider some strategies that are a little more complex, but which can also help limit downside and losses. As with all things investing, it’s worth consulting with a financial advisor to ensure that your strategies are right for you and that you’re going about them in the right way.

One strategy to consider is called “tax-loss harvesting,” a process that uses investment losses as a way to diminish one’s tax burden.

Here’s how it works: let’s say one of your securities sees a sharp decline and you want out. Rather than licking your wounds, you can sell the remainder of your holdings and reinvest that money back into the market. Selling the stock means you’ve recognized a loss that can be carried forward to offset gains in future years or can reduce ordinary income in the current year by up to $3,000.

Meanwhile, reinvesting the money keeps your market exposure basically constant. According to the law, you can reinvest the money into a new name immediately, but you can’t claim a loss on a security that you repurchase within 30 days of selling. If you want to use the decline as a buying opportunity, you’ll have to run the risk of waiting to get the tax benefit.

At Gary Goldberg Financial Services, we take a proactive stance towards any losses we have at the end of the year. If we still like the security that fell, we might buy it back after the waiting period has lapsed. Otherwise, we might use that money and shift to a different name we like better. We also look to stagger any tax-loss harvesting sales to ensure we’re not sitting on a large cash position in the event of a sharp market turnaround.

Your financial advisor will be able to help you walk through the specifics of tax-loss harvesting to ensure that you’re doing it correctly, and that taking this move in the first place would be wise for your circumstances. The important thing to remember is that a rough month or quarter for your holdings doesn’t have to be the end of the story.

Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at 845-368-2907 or chris.hanly@garygoldberg.com