Most people hate losing money.
Loss
Whether it’s an investment or property that appreciates (like a house), it’s hard to see a loss.
There are different kinds of losses: A ‘paper’ loss and a ‘realized’ (actual) loss.
Paper Loss
This kind of loss is what you see as a value on what you own. It is ‘just’ on paper. They may not like how it affects their Balance Sheet, but it’s not a ‘real’ loss.
Real Loss
A real loss is the kind that is actually realized when an asset is sold. Oddly enough, there can be an element of relief in selling something that has had a ‘paper’ loss for awhile. This is because the asset no longer affects the Balance Sheet.
People usually sell when an asset no longer fits the goal they bought it for.
Sell Trigger Points
What are ‘sell trigger points’?
They are valuation points a person sells at if, for example, the asset has lost it’s value by a certain percentage or appreciated in value by a certain percentage.
For example, “I will sell C shares if they go down by 15% or up by 25%”.
Quantifying the trigger points means they are not random: You aren’t affected to sell by any outside events or market ‘noise’.
It means you sell only when predefined thresholds are triggered. So, when you sell and realize a loss, you may feel relieved.
Relief
How can it be a relief to sell a loss? It underscored that you 1) stuck to the plan, 2) are done with an investment that no longer fits, and 3) have a loss to offset realized capital gains during the same tax year.
Since you are able to offset capital gains with $3,000 of capital losses every year, it helps if and when times of reluctance crop up.
It can be a nice offset for you that helps when you make the decision to sell at a loss.
Next Step
Ready to take the next step and work with a fee-only CFP? Reach out to schedule a Discovery Meeting to learn more.