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Stocks Worth Cutting Loose

Sometimes it's best to take the tax loss and move on.

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Breaking up may be hard to do, but sometimes it has to be done. The same goes for dealing with losing stocks in your portfolio. Sure, everything was great in the beginning, when the stock seemed like it would help your portfolio live happily ever after. But since then, things have gone from bad to worse. Now all you have is a bunch of losses and the bitter taste of regret. 

Of course, a stock's drop in price doesn't make it an automatic sell candidate. But if the fundamentals have deteriorated--or maybe weren't that strong to begin with--it makes sense to consider cutting your losses. Another reason to sell is if the stock still doesn't offer enough of a margin of safety to compensate for the risk involved. (For more about when it makes sense to sell a stock, click here.) The end of the year is a logical time to harvest your portfolio for tax losses, as you can use them to offset any realized gains or up to $3,000 in ordinary income. Any remaining losses can be carried forward indefinitely to offset future gains. 

Amy C. Arnott does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.