How to plan for investment losses in your budget

Coming up with a strong budget that is detailed and specific is absolutely and completely central to the success of your business or organization. A budget lets you know where your money is coming from and where your money is going to go. A budget lets you know how much money you have coming in, how much you can afford to let go out through purchases and other spending, and how much you are going to profit. However, if part of your budget is comprised of projected earnings from investment yields, then you will have to also plan for investment losses in your budget.

Make sure that you do not base your budget on your projected investment earnings. You can never ensure that those investment earnings will actually come in, so basing your company's spending on those earnings and your company's profit entirely on those earnings is a generally bad idea. However, you also have to know what to do when you lose money on your business' investments.

What can you do when you lose on your investments? Most people just think that if they hold on to that particular investment, then it will eventually go back up again and they will be able to recoup their losses, essentially negating the fact that there ever was a lost on that particular investment. However, there are potentially tax benefits that you can gain on losing investments, if you act properly. If you have investments in a tax-deferred account, such as IRAs or 401(k)s, then you should probably hold on to a losing stock because you're investing in it for its future prospects. These stocks also help you diversify your investments.

However, if you have your investments in a taxable account, then you should sell any investments that are giving you a loss, because you can actually get pretty big tax savings by selling them. When you plan your investments, hopefully you have a bunch of winning investments. However, your plan should also count in how your taxes will affect your return on those taxes.

If you have investments that are losing in the stock market, then you should consider the fact that the reduction in your taxes that you get when you sell losing investments can actually be counted as more investment returns. Why? Because when your taxes are reduced by selling off losing investments, then you will actually get money in your pocket. This is just like when you have a bunch of large investments gains and you get money in your pocket from those. Depending on your business' portfolio or your individual portfolio, this tax reduction can actually add up to hundreds of dollars, or even thousands of dollars. What matters is not how many different investments you have, but rather how much money you are getting, which is why you should not let yourself get too upset and insecure over investments that are running a loss.

Make sure that you talk to your tax advisor and your investment manager about the situation, because you will want to look carefully at your investments to know if it will be a good idea to sell off losing investments or not. This "harvesting" should go on all year, not just at the end of the year. If you have a bunch of losses, then by selling off those losses you may actually end up being able to reduce the taxes on your gains to zero. However, even you aren't looking to offset taxes on gains, you should still harvest your investment losses.