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- 💸 #0025 - How the Wealthy Turn Losses Into Tax Wins
💸 #0025 - How the Wealthy Turn Losses Into Tax Wins
How Losing Stocks Can Help Shrink Your Tax Bill
Shrewd Investor
April 22, 2025 • Read in 9 minutes
How the Wealthy Turn Losses Into Tax Wins
Death Cross in the S&P 500
What comes next?
Last week the S&P 500 and Nasdaq-100 both formed pattern a lot of traders watch called a death cross and people are freaking out!
Why?
The death cross is when the 50-day moving average (green) falls below the 200-day moving average (red) and it often signals bad things in the market.
Even worse in today’s market is the 20-day moving average (blue) is consistently a point of resistance that the market cannot overcome at the moment.
Even after last week’s 10% surge, it didn’t even touch the 20-day.
So, how bad can death crosses get?
Pretty bad in the cases of the 2001 tech bubble and the 2008 GFC, but those aren’t the only two times the signal has flashed.
What about the other times?
If we look at the table below, we see how common these events are and how most times, while the news isn’t good, it isn’t as calamitous as in 2001 and 2008.
The most common outcome is around an 8% further drawdown for a few weeks or a few months before a enviable rebound and run-up until the next downtrend.
Why isn’t something called a death cross much worse than the common 8% drawdown?
Well, because it’s a lagging indicator.
By the time it fires, the market is already pretty beat up, so most of the people who will sell have already sold.
And smart investors are often piling in at great prices.
So, is the death cross the end of the world?
No.
Is it cause for concern?
Definitely yes.
We don’t know what comes next for the market, but in the near term, it has to cross 5500 (7% up from here) to even be considered a return to an uptrend.
I wouldn’t be optimistic until the market crosses the 20-day and sees some support there.
But once the uptrend resumes, there will be excellent buying opportunities.
A Brief History of Death Crosses
Date of Death Cross | Marketing Movement |
|---|---|
April 2025 | ??? |
March 2022 | -16% |
March 2020 | Bottom was already in |
Dec 2018 | -13% |
Aug 2015 | -8% |
Oct 2011 | -5% |
Dec 2007 | -55% |
Oct 2000 | -44% |
Sep 1998 | -8% |
April 1994 | Bottom was already in |
Sep 1990 | -8% |
Feb 1990 | Bottom was already in |
Nov 1987 | -12% |
Talk soon,
Josh
In today’s issue:
Weekly Wisdom - Albert Einstein’s comment on taxes…
Market Minute - Did last week’s surge change the market?
Deep Dive - Save on taxes during downtrends…
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WISDOM
“The hardest thing in the world to understand is the income tax.”
DEEP DIVE
How The Wealthy Turn Losses Into Tax Wins
How Losing Stocks Can Help Shrink Your Tax Bill
The market goes up.
The market goes down.
That's the nature of investing.
Most people don’t think clearly during the downtime.
They freeze. They panic.
Or worse, they sell in a rush and get nothing except regret.
But here’s what the smart money does when the market drops:
They look for ways to turn those losses into advantages.
One of the best tools for that is something called tax-loss harvesting.
A Real Life Example: The Dot-Com Bust
Back in the early 2000s, tech stocks were flying high.
Then came the crash.
Investors watched their portfolios sink fast.
But a few of the sharp ones—mostly the quiet, long-term thinkers—did something smart.
They sold some of their losing stocks on purpose.
Not because they gave up on the companies.
But because they knew something most people didn’t:
The IRS lets you use losses to cancel out gains.
And if you had a big tax bill from earlier wins that year?
Those paper losses suddenly became very real, very useful tools.
It’s like using bad news to lower your bill from Uncle Sam.
That’s what tax-loss harvesting is.
What It Means in Plain English
Let’s say someone bought a stock for $50,000.
Now, after the market dip, it’s worth $30,000.
That’s a $20,000 paper loss.
They haven’t sold yet, so it’s just sitting there on the books.
But if they do sell it?
That $20,000 loss can now be used to:
Offset other investment gains
Reduce up to $3,000 of regular income
Carry forward into future years if there's extra left over
Think of it as banking a loss today to save on taxes for years to come.
That’s not a theory. That’s the law.
And the best investors?
They don’t wait to use it. They plan for it.
But There's a Catch: The Wash Sale Rule
To prevent abuse, the IRS created the “wash sale” rule.
If the same or substantially identical investment is bought within 30 days before or after selling, the loss is disallowed.
Here's how it works in practice:
Let's say you bought 100 shares of XYZ Corp at $100 per share ($10,000 total).
The stock falls to $70 per share, and you sell all shares for $7,000, creating a $3,000 loss.
If you repurchase any XYZ Corp shares within 30 days, your tax loss is disallowed.
Instead, the $3,000 loss gets added to the cost basis of your new shares.
What counts as "substantially identical"?
The same individual stocks are identical
ETFs tracking the same index from different providers may not be considered identical
Mutual funds with similar objectives but different holdings are typically not identical
That means careful timing and smart substitution are required.
Otherwise, the entire benefit can be erased.
This is where most go wrong.
But when done right, tax-loss harvesting becomes a predictable advantage.
How to Use It Today
If the market is down right now, and some investments are sitting at a loss, this could be the perfect moment to take advantage.
Here’s how to think about it:
Review all unrealized losses
Look at the positions below the purchase price.
Sell with intention, not emotion
The goal isn't to ditch the stock forever. It's to capture the loss.
Avoid the ‘wash sale’ rule
The IRS disallows the loss if the same asset is repurchased within 30 days.
Stay invested
Replace the sold asset with something similar, not identical. That way, your portfolio doesn’t drift off course.
The tax savings can be significant. Consider these examples:
A $10,000 harvested loss offsetting short-term gains in the 35% bracket: $3,500 tax savings
A $25,000 harvested loss for someone in the 24% bracket: $6,000 tax savings on gains, plus $720 on the $3,000 income offset
Even in the 22% bracket, harvesting just $5,000 in losses can save $1,100 in taxes
This is a move the wealthy make routinely, especially during down markets.
Because when prices fall, the tax savings get bigger.
For perspective: A portfolio that dropped 15% on a $200,000 investment represents a $30,000 paper loss.
Harvesting that loss could provide tax benefits worth $7,500-$11,100, depending on your tax bracket—essentially recouping a third of your market losses through tax savings.
Final Thought: Don't Waste the Downturn
Nobody loves seeing red on their portfolio.
But losses don’t have to be pointless.
Smart investors know how to mine opportunity from chaos.
And when it comes to taxes, this is one of the most reliable plays in the book.
Most people think they only win when things go up.
But the truth is—those who understand the game know how to win in both directions.
Like chess, it’s not always about the big, flashy moves.
It’s about staying one step ahead—even when the board looks messy.
Right now, the market’s giving out a rare gift:
A chance to turn short-term losses into long-term financial strength.
The ones who take it?
They’re not reacting. They’re positioning.
The window for year-end tax loss harvesting closes December 31st.
While others hesitate, savvy investors are already capturing these losses.
Each day you wait could mean tax savings left on the table.
Ready to take action?
Download our free "Tax Loss Harvesting Worksheet" that walks you through exactly which positions to evaluate and how to execute properly.
The most successful investors don't just understand these strategies—they implement them before everyone else does.
P.S. We created a comprehensive "2024 Year-End Tax Playbook" that walks you through exactly what you could be doing right now to save on next year's taxes. Get it free at: https://newsletter.shrewdinvestor.com/p/2024-year-end-tax-playbook
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The content provided in this newsletter is for informational purposes only and should not be considered as specific advice for any specific individual. The information is prepared by knowledgeable individuals and is not written by certified tax professionals or investment advisors. For personalized advice tailored to your unique financial situation, consult with a qualified tax professional, financial advisor, or attorney.
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