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5 Things Investors Should Consider Before the Year Ends

Dec. 02, 2010 5:47 PM ETMFC, AXIT
Larry MacDonald profile picture
Larry MacDonald

The end of the year is fast approaching. For investors in taxable accounts, it can be an important time. There are several tax-related opportunities and pitfalls to consider.

1. Tax-loss selling

If you have a non-registered investment account with losing positions, consider selling some or or all of them to claim capital losses that can be applied against past, current or future capital gains. Taxes can be reduced significantly when taxable capital gains are offset in part or whole.

Say goodbye to the losers and plow the proceeds into better investments. Even if there aren’t any better investments, you can still sell the losing stocks and buy them back after the 30-day period required for avoiding the “superficial-loss” rule.

Don’t like the risk of buying back at a higher price? Then purchase a proxy at the time of sale. The preferred proxy will have similar price movements yet be different enough to avoid triggering the superficial-loss rule. One of the attractions of exchange-traded funds (ETFs) is that they often fit the aforementioned description. The proxy, whether it is an ETF or a stock, can be retained on a long-term basis or be replaced by the original security after 30 days have elapsed.

2. Tax-loss (and window-dressing) bargains

The period just before Christmas is when tax-loss selling tends to peak, heightening the downward pressure on out-of-favour stocks. As a result, even greater bargains may emerge among the downtrodden. That is why contrarians Benj Gallander and Ben Stadelmann of the Contra the Heard advisory say they do the bulk of their buying at this time of year. If you have a value or contrarian bent, you might consider some bargain hunting as well.

Another thing that happens at this time of year is “window-dressing” by professional money managers. This means they’ll be selling losing stocks

This article was written by

Larry MacDonald profile picture
Larry MacDonald worked as an economist for many years and now manages his investment portfolio while writing about business and investing topics for leading Canadian publications. He also is the author of several business books.

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