What is an Investment Loss?

Investment losses are capital losses in which an investor sees the value of an investment decrease to a point that is no longer valued at cost of the original purchase. While an investment loss is a phenomenon that just about every investor experiences at one time or another, the event is rarely viewed in a positive light. However, it is possible to incur an investment loss and still retain confidence and even possibly come out ahead in the long term.

In some cases, it is possible to make use of an investment loss in order to minimize the amount of taxes owed. Depending on the type of investment and the location where the investor resides, the ability to write off all or part of the loss as a tax deduction for the period covered by the tax return may be a possibility. When an investor has other investments that did perform well, the loss may be completely covered and the tax burden eased slightly. This can mean that over the annual period, the loss actually ends up saving the investor a small amount of money.

Another aspect of an investment loss that may yield positive results in the future has to do with the experience and knowledge acquired as a result of the loss. When an investment fails to grow as expected, there are usually specific reasons why the loss takes place. The factors may include political issues, shifts in consumer demand, an overall downward trend in the marketplace, or some isolated factor such as worries about the financial stability of the issuer of the investment. Whatever the underlying factor or factors for the investment loss, there is the opportunity to learn from the situation and apply that learning to future investment activity. From this perspective, the loss may equip the investor to avoid similar situations in the future and over the long-term result in wiser investing decisions that earn a significant return.

When an investment loss seems imminent, it is usually in the best interests of the investor to assess the situation before making any decision to sell. There is always the chance that the investment may be experiencing a short downward turn and will begin to climb again within a matter of days or weeks. If this is the case, the investor may be in a position to absorb the short-term loss and hold on the security. The end result could be a capital gain that will offset the short period of loss and possibly generate more return that originally projected.