Selling At A Loss Doesn’t Have To Be Painful

I absolutely hate losing money on something I bought.

It can be an investment or it can be personal property that appreciates (like a house). I hate the ‘paper’ loss and I hate the ‘realized’ (actual) loss: If it’s only ‘on paper’  I don’t like how it affects my Balance Sheet. Oddly enough though, if it’s a ‘realized’ loss (what I actually incur when I sell) then there’s an element of relief that comes into play.

Usually I sell when an asset no longer fits the goal I bought it for or it has met the thresholds I established for sell trigger points.

What are ‘sell trigger points’?

They are valuation points I sell 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 it goes down by 15% or up by 25%”.

That way my trigger points are not emotional: I am not affected to sell by any outside events that may affect me, I sell only when predefined thresholds are triggered. So when I sell and realize a loss, there’s the relief of 1) sticking to the plan, 2) being done with an investment that no longer fits, and 3) having a loss to offset realized capital gains during the same tax year.

That third one is one most people do not pay attention to, and it is my favorite when it comes to losses. In my opinion people should give it more attention: Being able to offset other gains with my losses  definitely helps with the feelings of ‘having made a mistake’ when the loss is realized.

Because I (and you as a taxpayer) am able to offset capital gains with $3,000 of capital losses every year, it definitely helps if and when times of reluctance in getting rid of an asset crop up. Mind you $3,000 doesn’t go very far if there have been huge gains.

It also doesn’t go very far if it’s been a large loss we have had to realize.

But it is still a nice offset that helps when the decision has to be made and it’s the right, albeit painful at times, decision. (Disclosure: I am a Fee-Only Financial Planner.  Here is my website.)