Think Small To Save Big!

Under intense pressure, it’s easy to find yourself paralyzed and unable to complete even the simplest of tasks! The mind is a powerful tool and can be either your best friend or your worst enemy. As we grow old, our ability to deal with pressure improves, but life has a way of humbling and forcing us into situations we could never imagine. The coronavirus, and the uncertainty surrounding it, falls into that category! With the illusion of control over many aspects of our lives seemingly shattered, we must find ways both personally and professionally to move forward and regain some semblance of control. I’m reminded of something my mother pounded into my head as a child, “How do you eat an elephant?” she would say, “One bite at a time!” As investors and money managers, we must look for those small bites in the elephant to make progress in what can seem like an impossible situation. Below is one strategy that could be used to take advantage of this current negative market environment and take the first bite towards “devouring the elephant!” Remember, all strategies must be evaluated in light of your personal financial situation.

Realize Tax Losses

If you own assets within taxable brokerage accounts and those assets are currently trading at Unrealized Losses, one strategy that may be beneficial is to move out of those positions to Realize Taxable Losses. There are a couple of benefits to this strategy: 1) To counteract any Realized Gains you may have, or intend to take in the future and/or 2) To deduct the losses against ordinary income on your tax return at year-end ($3,000 limit per year).

To execute this strategy, you must sell the position currently at a loss, and leave it sold for at least 31 days. As a result of this waiting period you may ask, what if I want to continue holding the stock and it appreciates in price during that time? There is definitely some risk involved, but to help mitigate the risk, here are a few options: 1) Move your money to another individual company with similar attributes and/or 2) Move to a Sector based Exchange Traded Fund (ETF) for your companies’ particular sector. For example, if you currently own Exxon Mobil (XOM), and it is trading at an Unrealized Loss, you can sell the stock, move to another oil and gas company such as Chevron (CVX) for 31 days, then sell Chevron after the 31 day period and repurchase Exxon Mobil. Another option would be to use ETFs such as Sector SPDR Energy ETF (XLE) if not comfortable using individual companies as an alternative.

This strategy is just one small way of taking advantage of down markets to put some money back in your pocket during this difficult time. As always, there are risks involved so be sure to understand your risk tolerance and consult your financial advisor before taking any actions.

Follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.

Fox 6 Talking Points:

  • Counteract Gains or Deduct Against Income
  • Turn Unrealized Losses to Realized Losses
  • Find Replacement for 31-Day Waiting Period


Marshall Clay CFP, JD, is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™.  In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.  Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC (“Welch”), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  More information about The Welch Group and important Disclosures can be found on our website. Consult your financial advisor before acting on comments in this article.