Monday, April 13, 2009

Investment Losses Can Lower Your Tax Bill (?)

Investors who are not disturbed by this title should – seriously - check their investment IQs. If you have investments in the stock market my guess is, they are in hell at the moment. It would be the biggest understatement to mention that 2008 was a horrific year – with the DOW, NASDAQ and S&P 500 Index each plunging well over 30 percent.

Investing directly in the stock market - in my opinion - is dangerous, speculative and unnecessary in building a steady, realistic nest egg. By that I mean, financial advisers (regardless of the college they attended or the length of time they’ve been wearing suit and tie) cannot predict the future movements of the stock market, but there’s absolutely NO need to gamble and risk crashing.

Just for the record: our clients have NOT lost even a penny during this meltdown! Wondering how? It’s simple; we use common-sense instead of speculation. Hopefully, investors are finally waking-up to smell the coffee.

In an effort to calm frayed nerves, so-called financial advisers (who live on Mars) are arguing that those significant, troubling losses may actually be good for investors (haha). They suggest:

1. Capitalize on the opportunity to convert your 401(k), 403(b) or traditional IRA to a Roth IRA. To paraphrase: since you just lost over 30 percent of your nest egg, your tax bill will be lower – because -you get to convert the lower value.

2. You can use your realized capital losses (from the sale of your depressed securities) to offset up to $3,000 in ordinary income annually. Any unused losses may be rolled forward to cover any gains and income until they are all used up.

So you see after all it’s a “good” thing! Boy oh boy - no further comments.

Why Did You Invest?

People invest in order to build retirement nest eggs period! Their well-paid financial advisers promise to “manage”, “properly diversify” and “re-balance” their portfolios. As well as keep (very) close eyes on them. These investors were – and are still - being advised to relax and focus on the long-term. You see, in the long-term they’ll all of a sudden enjoy amazingly comfortable lifestyles! (or at least that’s what conventional advisers tell angry investors).

How much would you have invested if your adviser told you something like this: If you invest directly in the stock market, your nest egg may experience significant losses. But never mind, you can use the losses to reduce your taxable income by as much as $3,000 per year?

The sad fact is many retirees have watched helplessly as their life’s savings evaporate within a matter of months. They have losses to write-off for the rest of their lives and still have enough to last their children and grand children. Are there people who invest so they could write-off losses (LOSSES!) on their tax returns? Could someone tell those so-called experts to get real? PLEASE!

If Roth IRAs were that awesome (in the view of these advisers), how come their clients were (and are) invested in different plans? Let me guess: so they can lose significant amounts of their life’s savings – to make way for “the Roth conversion advice”. Sounds smart to you? Sounds – sort of – stupid to me.

How I See It

Every retiree facing this predicament has to endure living on a drastically reduced income (assuming a nest egg is presently generating income or about to). And that means lower taxable income. Therefore, they may not need the supposed – very expensive – additional break provided by realized capital losses. Yet, some so-called financial advisers see “good” news in that.


  1. This is very radical and profound! Thank you for laying out the truth - that's what we need and should expect from all professionals. We definitely should be opening our eyes and ears, especially with what has happened to our assets and see how best to move forward! Thank you, thank you, thank you!

  2. thak you for the BRILLIANT point of view. Very thoughtful and good advice. thanks!

  3. I couln't wait to comment on this article,but had computer problems all week. This one is a masterpiece, I actually overheard two senior citizen in the grocery store crying over the fact that they lost all their investments and why someone did not prevent this from happening? I must say myself and others who read these articles from week to week are definetly priviledge and unlike those two retirees who are now suffering can definetly say we know some facts. keep telling us more sam. SM. MD.


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