A stock market downturn is one of the biggest tax wins for a younger investor who is:

1) saving aggressively

2) has a portfolio of broad-market equity funds

3) also owns other assets that may generate capital gains (like private equity) and

4) is in a high capital gains bracket.

This presents an opportunity to harvest ‘paper’ losses for tax purposes without losing market exposure (so you don’t miss out on any potential upside). These capital losses can be used to offset capital gains on other assets indefinitely (until they’re used up).

Viewing stock market losses as ‘losses on paper’ that only become ‘real’ when you sell can help instill a mental discipline that improves your long-term, after-tax returns. $1M invested on 10/1/2007 (very bad timing) would be worth ~$4M today (despite an initial drop of ~$400K from Q4 2007 to Q1 2009).

Timing market ‘tops’ successfully requires timing their bottom too. Not that it can’t be done, but it’s very hard.

Key: For younger investors, time is often your best protection.

Disclaimer: For information purposes only and should not be interpreted as legal, tax or financial advice. Always consult your CPA/tax advisor/attorney (or reach out to us;) to discuss your specific situation. Past performance is no guarantee of future results.