A quick burn

Q

My dumbest investment was buying shares of a technology oriented mutual fund in my Roth IRA. They immediately took a nose dive, sharply falling in value. What should I do? Cash it all out and claim a loss on my taxes?

— L.W., Elk Grove

A

That investment experience stings, but it might not be as bad as you think. Many stocks and industries can be quite volatile, and technology-oriented ones can be especially so. Many solid companies and mutual funds will head south for a while, and savvy investors should expect occasional downturns and be ready to be patient.

If you have faith in the mutual fund’s managers or in the companies in which it’s invested, you might want to hang on. If you don’t, then it’s best to cut your losses and move your money to investments in which you have more

confidence.

That said, understand that IRA accounts work differently than regular brokerage accounts, and you don’t realize taxable gains and losses in them. You can still buy and sell various holdings in them, and then cash out parts or all of the IRA in retirement. At that time, funds withdrawn from a traditional IRA will be taxable income to you, while Roth IRA withdrawals will be taxfree. Taking money out of an IRA early can lead to penalties, and taxes.