You may have heard about the stock market heading into bear market territory, and you may be wondering, “What is a bear market?” and “How does a bear market impact me and my investments?”

With 40-year record high inflation and recent increased interest rates, you may be worried about what the recent stock market crash means to your finances.  Whether you already invested or you’re considering investing, don’t worry.  TurboTax has you covered and is here to help you figure out:

  • What is a bear market?
  • How does a bear market Impact you and your Investments?
  • What can new investors do in a bear market?

What is a bear market?

A bear market occurs when a stock index or markets drop for a prolonged period of time.  Generally, a bear market happens when the market falls 20% or more from it’s recent peak.  This past week S&P’s index dropped over 20% heading the stock market into a bear market. 

How does a bear market impact you and your investments?

The biggest question we’re hearing is, “What should I do if my stocks and crypto took a dive during the bear market?” If you haven’t sold it yet, you may see a loss in your portfolio on paper. It’s not until you sell your investments that you have a realized loss.  In other words, you can hold on to the stock or crypto and wait for it to go back up before you sell it.  This can also help if the crypto or stock in question was held for less than a year. When you hold on to crypto or stock investments for at least a year, you will pay lower capital gains taxes (assuming you have a gain).  

If you sold losing stock, you can offset your capital losses against your capital gains (known as tax-loss harvesting).  Offsetting a loss is essentially reducing the total amount of capital gains reported at tax time, which can lower your taxes.  This can also include the offset of ordinary income like wages, up to $3,000, further lowering your tax bill.

Offsetting your loss lowers your capital gains tax at tax time and you can also offset ordinary income like wages up to $3,000 further lowering your taxes.  Any additional losses over $3,000 can carry forward to future tax years.

What Can New Investors Do in a bear market?

If you are new to investing and considering purchasing, stock and crypto prices are at some of the lowest prices since early 2021.  You may be able to accelerate your investment plans and enter the market at much lower prices to start building your finances.

Check back with the blog for more up-to-date information and trends.  If you have questions and used TurboTax Live to prepare your taxes, remember you can connect with a TurboTax Live tax expert, in English and Spanish, year-round to get your questions answered.