I’m sure there’s something crucial I’m not understanding, but it seems like you’re just losing money? I’m trying to learn about investing and I’m so confused
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Let’s say you brought stock in Company X for $100, but now it’s only worth $50. You don’t think it is going to go down any further, but you also don’t think it is going back up anytime soon. Eventually, you’ll want to sell it so you can invest the remaining $50 in something better.
Assume you like the rest of your investments besides Company X and don’t want to sell any of the others this year. If you sold shares of Company X this year, you would simply be taking a loss. Instead, you hold on to it to ‘harvest’ later.
Fast forward a year. You have a stock in Company Y that you also bought for $100. It did really well and is now worth $200. After doing your research, you don’t feel it will go much higher, so you decide to sell. Since it went up $100, you would have to pay taxes on this money. You can now also sell your shares of Company X for $50. You can deduct the $50 you lost from the $100 you gained and only have to pay taxes on $50 of profit.
Someone with a lot of wealth is going to have a lot of different investments in a lot of different things. Even the best investors will have investments that don’t pan out. The idea is to pair your gains with some of these inevitable losses.
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