The 2022 Tax-Loss Harvesting Deadline Is Looming: What to Buy With Your Proceeds

By matching your investments with your financial goals, you may be able to make better risk-adjusted returns.

| More on:
Hourglass projecting a dollar sign as shadow

Source: Getty Images

Mark the calendar for December 28. That’s the last day to sell stocks at a loss for for tax-loss harvesting this year. The last day to trade for a loss is not December 31, because it’s the settlement date that counts. The idea is to use capital losses in loser stocks to offset booked capital gains so as to reduce the income taxes you’d be paying for your investments for the tax year.

Not all losing stocks should be sold. If you think a stock could make a comeback and you have the investment horizon, it may be better to hold it.

Let’s say you did book some losses and now you have excess cash. What should you buy with your proceeds?

Protect your principal and get some income

Maybe you took a loss because you took too much risk. If so, you may be inclined to put some of your proceeds into something really secure, such as Guaranteed Investment Certificates (GICs), since interest rates have gone up.

GICs are risk-free investments that protect your principal. Currently, the best one-year GIC rate is 5.3% with a minimum investment of $1,000. So, by buying this GIC, you’ll get your money back in one year and earn 5.3% in interest income on the amount.

However, you could argue that the recent inflation was about 6.9%. Assuming inflation stays at this rate for the next year, money in the GIC would lose 1.6% of its purchasing value over the period.

If you need to use this money in a year, this GIC is a decent investment. However, if you have a longer investment horizon, you can potentially get better returns by investing in quality stocks with good financial positions and steady growth potential.

Investing in quality stocks

Are you tempted by the higher rates offered by GICs? Then you might like Canadian Imperial Bank of Commerce’s (TSX:CM) juicier dividend even more. As one of the Big Six Canadian banks, CIBC is regulated and required to hold adequate capital in the changing macro environment. The regulation essentially improves the soundness of our financial system and, indirectly, the safety of bank stock investments.

If you trust buying GICs from CIBC, you might trust to buy its dividend stock for juicier income. At $55.44 per share at writing, the bank offers a dividend yield of about 6.1%. If we consider its history, the bank stock will likely increase its dividend over time. The value stock is trading at about 7.9 times earnings. Particularly, if you have an investment horizon for at least five years, you should see some solid price appreciation as well.

The Foolish investor takeaway

No matter when investing your tax-loss harvesting proceeds or new cash, it’s best for investors to match their investments with their financial goals. Are you going for a vacation in a year? Lock that money in a GIC. Are you planning on buying a home in five to 10 years? Saving and investing in a diversified mix of funds in quality bonds, preferred shares, and common stocks may be a good idea. You can even add handpicked, quality stocks like CIBC.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

retirees and finances
Dividend Stocks

How to Create a Million-Dollar TFSA in Two Decades

Your TFSA could create riches you didn't know were possible, but only if you commit again and again to your…

Read more »

Coworkers standing near a wall
Stocks for Beginners

2 Unassailable Earnings Growth Stocks for a Wobbly Economy

Aritzia and another top growth stock that could be hot performers through 2023 and beyond.

Read more »

Chalk outline of two arrows pointing in opposite directions
Stocks for Beginners

2023 Is a Terrible Time to Be a Saver: Here’s What to Do With Your Money Instead

You can hold short-term GICs for your liquidity needs but also consider investing your money in quality businesses for the…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

3 Cheap Stocks I’d Buy in Bulk When a Recession Hits

Not only would I grab these cheap stocks during a recession, I would then hold them for the next decade…

Read more »

Female hand holding piggy bank. Save money and financial investment
Stocks for Beginners

Millennials: How to Take Full Advantage of That “RRSP” Thing

I get it; it's hard to invest for the future when the present is stressful, but there are present benefits…

Read more »

Man with no money. Businessman holding empty wallet
Stocks for Beginners

Canadians Investors: How to Know When We’ve Hit a Recession

A recession is coming in 2023, but what does that even mean? And how can investors protect themselves before it…

Read more »

man slides
Dividend Stocks

TFSA Investors: Where to Put That New $6,500 Contribution Room

These stocks may be trading high, but they still offer value for TFSA investors seeking out the best stocks to…

Read more »

A bull and bear face off.
Stocks for Beginners

3 Cheap Stocks I’d Buy Before the 2023 Bull Market Arrives

Investors seeking out value should consider these cheap stocks, which could be some of the best stocks to buy before…

Read more »