A penny saved is a penny earned


I try to do the right thing with money. Save a dol­lar here and there, clip some coupons. Buy ten gold chains in­stead of 20. Four sum­mer homes in­stead of eight. LL Cool J.

With only a few days left of Hanukkah, and just the thought of eat­ing an­other suf­ganiya mak­ing you sick, it must mean that the end of the year is right around the cor­ner. With time run­ning out on 2018, now is the time for in­vestors to make some port­fo­lio ad­just­ments that can cre­ate tax sav­ings and get their port­fo­lios ready for the up­com­ing year.

This year has been in­cred­i­bly volatile for in­vestors. Mar­kets surged, then dropped, surged again and have now been in a tail­spin for two months. This means that there is a good chance that you have ei­ther gains or losses in your port­fo­lio.

Whether you have re­al­ized gains or losses in your port­fo­lio, some tac­ti­cal moves now can end up sav­ing you many thou­sands of dol­lars. Here are some tips to make your port­fo­lio more tax ef­fi­cient, as well as to make sure that it still matches the your goals and risk tol­er­ance lev­els.

Profit from Losses

If you have sold po­si­tions and now sit with cap­i­tal gains, re­view your port­fo­lio to see if you have any po­si­tions that are cur­rently at a loss – and with the way mar­kets have been of late, there is a good chance that you have some. While many in­vestors would never con­sider sell­ing a po­si­tion that is los­ing money, sell­ing your losers can ac­tu­ally make you money.

Never think that all is lost. Some good can ac­tu­ally be de­rived from los­ing stock po­si­tions. When the po­si­tion is sold, the in­vestor re­al­izes the loss, which has cer­tain tax ad­van­tages. The loss can be used to off­set other gains, thus low­er­ing the tax bill. In fact, for many in­vestors, tax-loss sell­ing may be the most im­por­tant way to re­duce their tax bill.

If done cor­rectly (be sure to speak to your ac­coun­tant be­fore mak­ing any trades), it can save sig­nif­i­cant amounts of money. For ex­am­ple, if a per­son has a gain in Stock A and she de­cides to sell it, she will be taxed on that gain in full. But if she has a loss in Stock B that she ac­tu­al­izes by sell­ing, she can use the amount of the loss and off­set it against the gain in A, dras­ti­cally re­duc­ing the taxes she owes. This might not re­cover the en­tire loss, but it cer­tainly cush­ions the blow.

Con­versely, if you have sub­stan­tial losses from pre­vi­ous years, you should speak to your ac­coun­tant at once to see if it pays to sell po­si­tions that have gained in value, in or­der to cush­ion any fu­ture tax bill. By do­ing this, the in­vestor can ac­tu­ally re­set their cost ba­sis at a much higher level, with­out in­cur­ring any tax li­a­bil­ity. You have un­til the end of the year to im­ple­ment th­ese strate­gies, so if you have yet to do so, the clock is tick­ing.


There is a rule in the US, called the “Wash-Sale Rule,” where the IRS dis­al­lows a loss de­duc­tion from the sale of a se­cu­rity if a “sub­stan­tially iden­ti­cal se­cu­rity” was pur­chased within 30 days be­fore or after the sale. Let’s say that you sold a hun­dred shares of Face­book on Novem­ber 28 at a loss and will buy them back on De­cem­ber 15 – the loss de­duc­tion would not be al­lowed .The wash­sale rule is de­signed to pre­vent in­vestors from mak­ing trades for the sole pur­pose of avoid­ing taxes.

A new re­al­ity

Much has changed in the world over the last year. When look­ing at your port­fo­lio to try and off­set gains and losses, take a few extra min­utes and make sure your port­fo­lio is well po­si­tioned for cur­rent con­di­tions.

One of the most over­looked as­pects in long-term in­vest­ing is the need to re­bal­ance a port­fo­lio. Re­bal­anc­ing is im­por­tant for two main rea­sons. First of all, it keeps your port­fo­lio in tune with your long-term goals. And sec­ond, it keeps your as­set al­lo­ca­tion in line with your risk level.

Speak with your ac­coun­tant and fi­nan­cial ad­viser in or­der to fine tune your port­fo­lio be­fore year’s end, to make sure that it is both ef­fi­cient from a tax per­spec­tive and prop­erly al­lo­cated from the in­vest­ment side.

The in­for­ma­tion con­tained in this ar­ti­cle re­flects the opin­ion of the author and not nec­es­sar­ily the opin­ion of Port­fo­lio Re­sources Group, Inc. or its af­fil­i­ates.

Aaron Katsman is the author of the book Re­tire­ment GPS: How to Nav­i­gate Your Way to A Se­cure Fi­nan­cial Fu­ture with Global In­vest­ing (Mc­Graw-Hill). He is a li­censed fi­nan­cial pro­fes­sional both in the United States and Is­rael, and helps peo­ple who open in­vest­ment ac­counts in the United States. Se­cu­ri­ties are of­fered through Port­fo­lio Re­sources Group, Inc. (www.prginc.net). Mem­ber FINRA, SIPC, MSRB, FSI. For more in­for­ma­tion, call (02) 624-0995, visit www.gpsin­vestor.com or email [email protected] light­house­cap­i­tal.co.il.


IT’S IM­POR­TANT to count your pen­nies.

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