By Douglas Goldstein, CFP®

In recent months, many people’s net worth has taken a tumble.  If your savings were long term, you may be able to make up the losses with a good investment plan and diversified asset allocation.  If your savings goal is more immediate, however, consider selling out and putting your assets into more conservative investments.

While it’s never easy facing a portfolio that took a dive, take a close look at your losses.  What positions have the largest losses?  Consider selling them in order to realize the loss. That way, you can possibly offset other gains (now or in the future) against these losses in order to lower your tax bill. Be sure to check with your accountant to make sure you do this properly. 

If you sell out positions, be wary about trying to time the market. Even though the view may seem dismal, if you sell out completely and go to all cash, how will you know when to re-enter the market? Timing the market is difficult, since you need to be in the market before it goes up.  From 1963 to 2004, U.S. stocks gained an average of around 11%. For people who missed the 90 biggest-gaining days in that period, their return fell to just 3.2% [University of Michigan, 2005]. So if the market turns around, and you’re not invested, you may greatly reduce your potential profits.

While it may be tempting to sell your entire portfolio, remember that historically stocks have been the asset class with the highest gains.  While past performance is no guarantee of future results, and may not be reassuring after recent news, realize that you may need growth (i.e., stocks) to compensate for both today’s losses and tomorrow’s inflation. 

If your financial plan calls for keeping a percentage of your assets in stocks, keep some stocks while engaging in tax-loss harvesting. Speak to your financial adviser about techniques for long-term, tax-efficient investing.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc. (www.prginc.net) Member FINRA, SIPC, MSRB, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.