Don’t Fear Market Losses—Learn from Them

April 22, 2025

Market losses are part of investing.

They’re frustrating—but also useful.

Every investor experiences them. What matters is how you respond.

Don’t freeze. Reflect.

Seeing your portfolio drop can lead to panic.

But reacting emotionally often makes things worse.

Ask yourself:

  • Was your risk tolerance overestimated?

  • Did you follow a plan—or invest based on hype?

  • Is your asset allocation too narrow?

✅ Example: If your tech-heavy portfolio dropped 30% when the broader S&P 500 only lost 10%, your mix may be too aggressive.

Market losses expose weak spots. Use that information.

Revisit your investment and tax goals

Losses offer a chance to recalibrate—not just your portfolio, but your tax strategy.

Make sure your investment structure fits your life stage, risk tolerance, and tax efficiency goals.

Ask yourself:

  • Are my growth assets in tax-advantaged accounts?

  • Do I have too many dividend-heavy investments in a taxable account?

  • Am I taking advantage of my Roth IRA, HSA, or employer plan?

✅ Example: Keeping income-producing assets like bond funds in a Roth IRA shields you from ordinary income tax. This helps long-term compounding stay intact.

For physicians considering their employment structure, understanding the tax implications of being an independent contractor versus an employee is crucial. The article “Doctors: Is Your Physician Group Causing You to Pay Higher Taxes in 2025?” delves into how your classification can significantly impact your tax burden.

Adjust your asset and tax mix

Diversification isn’t just about sectors—it’s also about taxes.

You can reduce volatility and taxes by:

  • Shifting high-yield holdings to tax-deferred accounts

  • Keeping index funds or ETFs in taxable accounts (due to lower turnover)

  • Balancing capital gains against existing losses

✅ Example: If your dividend fund is in a taxable account, you could move it to a traditional IRA, where income is deferred until withdrawal.

Harvest losses—legally and smartly

Under IRS rules, capital losses can offset capital gains.

Here’s how tax-loss harvesting works in 2025:

  • Use realized losses to offset any capital gains

  • Deduct up to $3,000 of net capital losses from ordinary income (if married filing jointly or single)

  • Carry forward unused losses to future tax years indefinitely

✅ Example: You realize a $20,000 loss. You had $15,000 in capital gains. You pay $0 in capital gains tax this year and deduct $3,000 from your income. The remaining $2,000 rolls forward.

🔎 Comply with wash sale rules: You must wait 31 days before rebuying the same or a substantially identical investment, or your loss will be disallowed.

Physicians can also explore strategies to maximize deductions beyond investment losses. For instance, combining business travel with leisure can offer tax benefits. Learn more in “Maximizing Tax Deductions: How Doctors Can Write Off Business-Related Vacations in 2025”.​

Keep investing—with a tax-smart approach

Don’t stop contributing after a loss.

Downturns are often the best times to invest—especially in tax-advantaged accounts like:

  • Roth IRAs

  • 401(k)s and 403(b)s

  • Health Savings Accounts (HSAs)

  • SEP or Solo 401(k)s (for self-employed individuals)

✅ Example: After a dip, converting $50,000 from a traditional IRA to a Roth IRA means you pay tax now on a smaller value—and all future gains grow tax-free under current law.

Roth conversions are especially powerful during market drops.

For a comprehensive guide on creating a tax-free retirement, consider reading “Physicians: How to Create a Tax-Free Retirement, Part I”. It outlines various strategies tailored for medical professionals aiming for financial independence.​

Plan future income and deductions

A market loss year is also a chance to look ahead.

You may want to:

  • Defer income to next year to stay in a lower tax bracket

  • Time charitable donations or deductible expenses to this year

  • Realize losses now to offset future gains

✅ Example: If you’re self-employed and had lower income in 2025, consider deferring invoicing to early 2026. You might also group charitable contributions in 2025 to maximize your itemized deductions.

This is legal tax timing, and it’s IRS-approved.

Track your behavior and your tax opportunities

Your investment behavior tells a story.
So do your tax decisions.

Ask:

  • Did I panic or stay calm?

  • Did I miss an opportunity to reduce taxes?

  • Could a different business or retirement structure serve me better?

✅ Example: A 1099 physician might realize market losses in a taxable account and simultaneously open a Solo 401(k) to defer up to $69,000 in 2025 (employee + employer contributions).

This strategy combines tax deferral with asset building.

Consult a tax-savvy financial advisor

The best advisors coordinate your investment and tax strategy.

They help you:

  • Realize tax losses without violating IRS rules

  • Rebalance into more tax-efficient holdings

  • Structure Roth conversions and business income

  • Choose the right entity or account based on tax impact

✅ Example: After a $100,000 portfolio drop, your advisor might recommend harvesting losses, executing a partial Roth conversion, and rebalancing into more stable positions—all while minimizing your total tax burden.

Physician Tax Solutions specializes in proactive tax planning for medical professionals. Their services encompass tax compliance, retirement planning, and strategic financial advice. Discover more about their offerings at What We Do – Physician Tax Solutions.​

Ask yourself:

  • Am I using losses to reposition for long-term growth?

  • Am I optimizing my accounts and tax decisions?

  • What steps can I take now to reduce my lifetime tax liability?

Market losses don’t have to be failures.

They can be tax-planning tools.

They can lead to better asset allocation.

They can give you clarity on your risk—and your resilience.

Use them.

Recover smarter.

Build forward with purpose.

Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.

This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.

 

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