Time for a little fall cleaning

espite the recent gains in the market over the past few months, many investors are still holding on to stocks that have not fully recovered. As a result, this may be a good time to put emotions aside and evaluate your portfolio holdings to determine what action - if any - you should be take to position your investments for the future. And while it is tough for any investor to sell a stock at a loss, there are actually some benefits you can realize from doing so. Let’s look at a few tips on how you can make the most of any losses incurred in your portfolio.

As you evaluate your holdings, take a good look at how each of your stocks has done since you bought it. Consider each stock’s prospects for the future, along with the company’s financial information. You can also take into account what the media is saying about a company and maybe even ask for a research report to see how analysts think the stock will perform in the coming months. After you have taken a good look at your holdings, you should create a plan with guidelines that take into account how each company is valued now versus when you bought it, and how it is expected to perform over the next year. Stick with your guidelines for each company and sell those stocks that don’t measure up.

Now that you’ve decided what companies to sell, you’re probably still wondering what the benefit of selling them at a loss will be, and the answer will come when you file your taxes. When you sell a stock at a loss you have the opportunity to offset any gains. For example, if you incurred $2,500 in losses from the sale of your stock and say you sold another stock for a $4,000 gain, you offset the gain with the loss, thus reducing your tax bill. In the example above, you would only have to pay taxes on $1,500 of the gain, instead of the full $4,000.

In addition, you can use up to $3,000 in losses to reduce your taxable income in a single year, and you can carry forward any further capital losses to offset future capital gains and/or income. Simply put, selling at a loss may reduce your overall tax bill.*

Hopefully, you’re feeling a bit better now about selling some of your stocks that have not performed as well as you expected them to, but don’t stop there. Now you have the opportunity to rebuild - or at least add to - your portfolio so you can better position your investments to take advantage of improving market conditions.

When cleaning up your portfolio, it is important to remember some of the key principles of investing, primarily diversification. A properly balanced portfolio should include a number of different investments in a range of sectors allowing you to manage your risk. Also remember your goals and check in with your financial consultant at least once a year to make sure you are still on the right path to achieving them.

*A.G. Edwards does not render legal, accounting or tax preparation advice. You should consult your tax and legal advisors for your specific situation.

This article was provided by Kevin Courtney & John Wigington of A.G. Edwards & Sons, Inc. Member SIPC.

You have it easily in your power to increase the sum total of this world’s happiness now. How? By giving a few words of sincere appreciation to someone who is lonely or discouraged. Perhaps you will forget tomorrow the kind words you say today, but the recipient may cherish them over a lifetime.
- Dale Carnegie