Compost for your investments
Composting fuels your garden, and tax loss harvesting can help fuel your portfolio!
One of my favorite hobbies is gardening. For me, late fall involves winterizing the garden and building lots of compost piles.
I love composting. Composting takes things like dead plants, leaves, or unwanted pumpkins, and turns them into rich soil that fuels growth in next year’s garden. And that biological process of taking something seemingly worthless, and creating value, I just think that is incredible.
We can apply those same principles of growing a garden to growing a portfolio.
Within diversified portfolios, there are winners and losers. Too often an investor will hang onto a bad investment because selling at a loss can feel like admitting they were wrong. While it’s always better to make money than lose money, those losses have value. Kind of like, those old pumpkins sitting on your porch.
By selling those depressed positions, you do 2 things.
First, you free up capital to invest in today’s best ideas
Second, taxable losses can be used to offset gains in other investments or can be carried forward to future years and future gains.
Now I don’t create waste, just so I can compost it. And I don’t necessarily advocate buying and selling position solely based on tax considerations.
But within the scope of your personal financial plan, underperforming positions in your portfolio may provide the nutrients to fuel next year’s growth.
And that’s what we are trying to accomplish for our clients with tax-loss harvesting.