It May be a Down Market, But Don’t Compound Your Losses!
It happened again today. One of my clients said, “We have lost so much in our mutual funds that I should just sell EVERYTHING and start over.” I asked him, “How do you know that you have a taxable loss?” He looked at me and replied, “Everybody knows that the whole market is down by at least 40%! That’s how I know.” Many seniors are panicking and making big mistakes in dealing with investment losses. The two main errors made are:
- Thinking that perceived investment losses are the same as tax losses; and
- Failing to understand that any withdrawal from an IRA, 401(k), or 403(b) will always be treated as ordinary income.