Mon Aug 12 2024, by Tyler Gardner

How to Make Money When the Stock Market Crashes: Tax Loss Harvesting Explained

Here is the number one way that I make a bunch of money when the stock market crashes, as a former financial advisor and portfolio manager. I'm Tyler, and I create financial content for free so that you don’t have to pay for it.

1. Market Reaction

I wake up and I’m told that the sky is falling.

2. Portfolio Assessment

I look at my portfolio and realize that some of my stocks are worth less than what I bought them for.

3. Identify Losses

Let’s say that Coca-Cola, Procter & Gamble, and Nvidia are all down big time and are worth $5,000 less than what I paid for them.

4. Lock in Losses

I’m going to sell those three stocks and lock in a $5,000 loss on paper.

5. Offset Gains

Next, I’ll look at other stocks that I bought that are worth significantly more than what I paid. I’ll sell those and lock in a $5,000 gain.

6. Tax-Free Gains

I’ll call my mom and tell her to be proud because I just locked in $5,000 of capital gains and will pay zero taxes on those gains because the $5,000 of losses offset those gains.

7. Stay Invested

I’ll keep my mom on the phone and say, “Hey mom, you know how I just sold Coke, Nvidia, and Procter & Gamble? Well, I’m immediately going to buy Pepsi, AMD, and Johnson & Johnson.” This way, I remain fully invested.

8. Additional Losses and Offsetting Income

I’ll sell another $3,000 of stocks that are down to lock in another $3,000 of losses. I’ll use that $3,000 to offset $3,000 of my ordinary taxable income this year.

Conclusion

My mom will be like, “Did you just teach people about tax-loss harvesting in one minute?” And I’ll say, “No mom, a minute and ten seconds.”

Source