2 Perks of a Down Stock Market

Our goal as investors is to make money — not lose it. So when the stock market finds itself going through an extended rough patch, it can be frustrating and upsetting.

This year, many of us are seeing losses in our portfolios. And for near-retirees, a massive hit to an IRA or 401(k) plan could be downright devastating (namely, because it could mean having to postpone retirement until the market recovers).

But as unpleasant and disturbing as a down stock market is, there are a couple of silver linings investors can look to. Here are two worth focusing on during these tricky times.

Image source: Getty Images.

1. Stocks are available on the cheap

Are there companies on your wish list you’ve been waiting to buy due to budget-related constraints? Now may be your opportunity to scoop them up.

Stock prices are down right now across the board, which gives you a chance to invest in the quality businesses you’ve had your eye on for a while. And remember, if you can’t afford a full share of a given stock, most brokerage accounts these days let you purchase fractional shares. If you go that route, you’ll still benefit from lower stock prices, and you’ll get to invest in a manner that works for your budget.

2. The potential to enjoy tax savings

As an investor, you’re probably aware that when you sell stocks at a profit in a brokerage account, you’re liable for capital gains taxes. But if you sell stocks at a price that’s lower than what you paid for them, you can claim a capital loss. And that loss could be used to offset other gains in your account, thereby lowering your tax bill.

Right now, you may not be sitting on any capital gains for the year, since stocks have pretty much been down since the start of 2022. But if you decide to unload an underperforming stock at a loss, you can use that loss to offset up to $3,000 worth of ordinary income this year. And if your loss exceeds that amount, you can carry the remainder into 2023.

We don’t know if stocks will regain their value going into the new year, but if they do, you may end up deciding to sell some at a profit. And in that case, having a carried loss could make it so you’re not stuck with a whopping tax bill in 2023.

It pays to look at the bright side

Right now, investors as a whole aren’t happy about the state of the stock market — and there’s no need to pretend otherwise. But since stocks happen to be in an extended slump and there’s nothing any of us can do about it, we might as well try our best to get some positives out of it. That could mean scooping up shares of your favorite stocks while they’re available at a lower price point, or taking steps to eke out some tax savings and pay the IRS less money.

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