Is it better to realize the loss and buy back in at the lower price or just hold it?
I'm not a big fan of hypothetical questions. It depends on what you're trying to optimize for, i.e. taxes or total return. Most investment advisors would tell you "don't let the tax tail wag the investment dog."
There's an opportunity cost to selling with the intent to buy back in at a lower price. What if it recovers as quickly as it dropped? What if it drops further?
Time in the market generally beats timing the market. If you liked the stock at $150 and intend to hold it indefinitely, you should love it at $100 and consider buying more instead of selling.
Adding my comment to the answer:
You can't realistically assume that you're selling and buying at the same price.
Even if you did, what's the point? If you're selling/buying near instantaneously the loss will be disallowed due to the wash sale rule, which prohibits selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale.
If you wait long enough, it's virtually impossible to buy back in at the same price. At a minimum, you're crossing the bid-ask spread.
Answer from 0xFEE1DEAD on Stack Exchangecapital gains tax - Is it better to realize a loss and buy back into a stock at the lower price or just hold it? - Personal Finance & Money Stack Exchange
Never selling shares - Bogleheads.org
stock markets - It's not a loss until you sell? - Personal Finance & Money Stack Exchange
What is your opinion on never selling at a loss?
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I got tired of getting the Wash sale mark next to some of my stocks because I sold at a loss, or sold a portion of it while it was down from the day before (even though my total gain was still green), and buying back the same or similar stock within 30 days. So I don't sell anymore if it's in the red, even if it's down a penny.
Would this hurt me in the long run? I feel like I did miss out on some opportunities to invest in other stocks with the same capital because I refused to sell. I wonder if avoiding wash sales is worth this loss of opportunity.
Is it better to realize the loss and buy back in at the lower price or just hold it?
I'm not a big fan of hypothetical questions. It depends on what you're trying to optimize for, i.e. taxes or total return. Most investment advisors would tell you "don't let the tax tail wag the investment dog."
There's an opportunity cost to selling with the intent to buy back in at a lower price. What if it recovers as quickly as it dropped? What if it drops further?
Time in the market generally beats timing the market. If you liked the stock at $150 and intend to hold it indefinitely, you should love it at $100 and consider buying more instead of selling.
Adding my comment to the answer:
You can't realistically assume that you're selling and buying at the same price.
Even if you did, what's the point? If you're selling/buying near instantaneously the loss will be disallowed due to the wash sale rule, which prohibits selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale.
If you wait long enough, it's virtually impossible to buy back in at the same price. At a minimum, you're crossing the bid-ask spread.
If you're asking about taxes, you'd need to specify a country. If you're in the US (based on your profile), you'd have a wash sale unless you bought the shares back more than 30 days later in which case you wouldn't be allowed to deduct the capital loss. So in the US, unless you want to exit the position and stay out for more than 30 days before buying the shares back, you're better off holding the shares.
If you are willing to stay out of the position for more than 30 days, then it can be reduced to a math problem. But you'd need to make guesses about things like what the capital gains tax rate will be when you sell, what discount rate to apply to get the present value of future cash flows, etc. And if you're thinking of holding the shares until you die, potentially you'd never owe capital gains tax...
"It's not a loss until you sell is a rationalization that people use to negate reality.
An UNREALIZED loss results from holding onto an asset after it has decreased in price, hoping that asset price will eventually recover. Selling the stock converts it to a REALIZED loss.
For example, if your 100 shares of a $50 stock goes to $10, you have lost money. You just haven't realized it yet. If you think otherwise, will your broker allow you $5,000 of margin borrowing when the stock is $10? Nope. Even your broker recognizes the LOSS and will base a possible margin loan on the current value of $10.
Or suppose you bought the $50 stock on 50% margin. When it drops below $33.33 and violates the minimum margin requirement of 25%, will your broker say, "No problem mate, it was once worth $50 and there was no LOSS"? I think not.
Making or losing money is based on today's stock price. Realizing that gain or loss occurs when you sell the stock.
Here's an extreme example. Do you think that anyone who bought Enron or Lehman Brothers (and rode it down) says: "I didn't lose money because I didn't sell the stock."?
A more realistic way to think about this is that whenever you buy something, your money is lost (you gave it to someone else). At a later date, you may recover some of it, all of it, or even a profit, when you sell it to someone else who then gives you their money.
Your money is lost when you buy a stock, and gained when you sell it. In the sense that it is no longer liquid or legal tender in exchange for other goods.
You should think of investing in this way so you are only ever willing to invest what could be lost forever (although it is extremely unlikely a diversified investment would lose all or even most of its value)
Historically, yes, the stock market beats inflation. But in ideal settings buying low and selling high is good, and selling before any continued drop and then rebuying is better than holding.
You should remember ITS NOT A GAIN UNTIL YOU SELL IT (and it must be at a higher value than you initially paid)