Can Stocks Depreciate?
When you invest in the stock market, you are essentially buying a share of ownership in a company. The value of your stock can increase based on many factors, including the performance of that company. In some cases, when the market declines, the value of your stock may decline as well.
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Rising and Falling
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When you buy a stock, you typically pay the market price for that stock at the moment. Once you own the stock, the market value of the stock will not remain constant. Instead, the value of the stock will rise or fall based on market factors and the performance of the company. If the stock market goes through a rough period, the value of your stock could depreciate rapidly. In fact, if the company goes out of business, the value of your stock could decline to nothing.
Factors Involved
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The prices of stocks are impacted by many different variables throughout the course of a trading day. For example, when the company issues an earnings report, this news typically impacts the price of the stock in the market. The long-term performance of the company can also negatively impact the stock. When the market as a whole declines, the value of your stock may be impacted as well. The general perception of the company in the marketplace can have an impact also.
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Tax Implications
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When the value of your stock depreciates, it can have an impact on your tax situation as well. If you sell stock for less than you originally paid for it, this is known as a capital loss. When you realize a capital loss, it can offset any capital gains you realized for the year. When you have capital losses that exceed your capital gains for the year, those losses can be used to offset up to $3,000 worth of regular income.
Considerations
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When buying stock, you have to be prepared for the possibility that your stock could depreciate in value over time. Because of this, experienced investors learn to diversify their portfolio over many different stocks and even asset classes. This way, even if the stock you choose depreciates in value, you have other stocks in your portfolio to pick up the slack and help you still earn money over the long-term.
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