If I bought some stocks and the market crashes, how do I make the best of this situation.?

Question

In other words Ive read you can actually profit with stocks that pay dividends. I also read you can use stock market losses to write of stock market gains. How would this work?

Answer 1

A crash is a good chance to make some money though many get scared, cash out and lose. When a crash occurs, its generally a great time to get in and buy MORE of that stock. If you have done your homework on that particular stock and see a future in it. You want to buy low so to sell high. Not sure why many do not understand this but that's the way to make money.

Far to many people think getting into a hot company is a good thing. YES it is of the that price is way down or you got in before it was popular. Hang on to your crashed stock if its a company that is HUGE. If its at the bottom, the only way it can go is UP !! Sometimes that bottom lasts a year or two but I have made damn good money simply by letting it ride.

: )

Answer 2

If you keep them in a nominee account you can have 'stop-losses' in place which automatically trigger a sell order if a stock drops to a set price and stops the loss. However if the stock recovers you have crystallised that loss and can't get it back.

It depends how much effort you are prepared to put in - in monitoring your holdings. Individual stocks can be highly volatile - it depends on how speculative they are.

In the UK losses can be used to offset liability for capital gains tax however that is triggered at a capital gain of 8,300 ish so really only affects richer clients. You sound like you might be better with buying a structured financial product from a quality provider that will spread your risk far wider than an individual with only a few stocks.

Unless you are prepared to take the risk. You should bear in mind that transaction charges will disproportionally hit the smaller investor - also currency risk is a minefield as well. There is a currency 'spread' in other words the price you buy a currency at is not the same as the price you can sell at - all other things remaining equal.

Stick to your home market is the advice I would give you and look at most stocks as 3-5 year investments - otherwise you really are just gambling. It is an interesting game though and you have to keep abreast of events. It is not something you should do with money you cannot afford to lose though. Stick to something safer if that is the case.

Answer 3

As long as the prognosis for the economy looks good, yes, you should buy. If you bought right after the last crash -- October, 1987 -- you would have made out like a bandit, because there was nothing fundamentally wrong with the economy and the market rapidly recovered. However, if you bought right after the 1929 crash, as the country was headed into the Great Depression, you would have lost badly since the worst of the decline was to come over the following several years. You wouldn't have gotten back to even until the 1950s. I believe the economy is fundamentally OK right now, and I would probably buy after a crash, should one occur. However, I would not be expecting a crash now.

Answer 4

Let's say you have two stocks that you bought for $1,000 each. One goes to 0 and the other goes to $2,000. If you sell them both, you would pay no taxes, because the loss of $1,000 would "wash" out the profit of $1,000. But you might not want to sell the one that's gone up, so you could keep that loss going for a couple of years until you had something to sell, I believe.

If a stock goes down, or goes up, it doesn't matter if you continue to hold it. You only gain or lose when you sell it. So, so long as it doesn't go out of business, it doesn't matter what it does while you hold it. If it pays a dividend, you continue to make money whether it goes up or down.

Another thing... you could own ten stocks, and one might go down a lot, but another might go up. It's called diversification, and it helps protect you against losses.

No risk = no reward.

Answer 5

You can use Capital Losses to offset Capital Gains. So let's say you made $1000 on stock XYZ and lost $500 on stock ABC. When you file taxes, you can deduct the $500 loss from stock ABC, leaving you with a $500 profit from stock XYZ. You will only be taxed on $500, and not the $1000 you made.

Answer 6

If you bought some shares in the market and also the market crashes, you wait till the market has gone-up. If the market has gone up you can sell the stock.