Financial advisors guiding clients through this year's market turmoil might consider a few tips from Creative Planning CEO Peter Mallouk, who recently outlined four pitfalls that investors should keep in mind to avoid "self-inflicted wounds" in their portfolios.
"Bear markets are hard enough to get through without getting in your own way," Mallouk tweeted Monday, introducing a Twitter thread with succinct insights.
1. Triggering the wash-sale rule.
This rule can prevent them from taking a tax deduction for selling a security at a loss if they repurchase shares, or a substantially identical vehicle, within 30 days.
"When tax-loss harvesting is done improperly, it can trigger the wash-sale rule, disallowing your capital gains tax deduction and resulting in a higher tax bill than expected," Mallouk wrote. "This results in a completely wasted opportunity to reduce your tax bill."
2. Getting spooked by volatility.
"The key to success during a bear market is to have an investment strategy in place to help manage volatility and put you in a better financial position once the bear market ends," he tweeted. "This is not the time to abandon the plan."
