If you hold a diversified portfolio of stocks, some of your stocks are bound to fall in price. They can be sold at a loss, reducing your tax bill for the year.
After taking losses in this manner, the sale proceeds can be reinvested in other stocks. Moreover, your tax savings can be reinvested, too. If your tax savings are reinvested regularly, your portfolio will grow steadily from the money not paid to the IRS.
Such a strategy is a form of dollar-cost averaging: a program of investing regularly in the stock market. You’ll buy more when stocks are down and buy less when stocks are up, reducing your overall costs. Over a long time period, the money you invest in this manner can grow to be a substantial addition to your portfolio.
