Capital Recovery Calculator

To understand capital recovery, we must first understand capital loss.

What Is Capital Loss?

A capital loss is when the selling price of a stock or investment is lower than the original purchasing price, ultimately resulting in a financial loss.

Example

Warren Buffett once lost $400 million in a poor investment with Dexter Shoes. He then paid for that investment with his stock in Berkshire's, compounding it into a $3.5 billion error.

The point is, no matter how great of an investor you are, losses happen.

Capital losses are something every investor will eventually come across. No one opens an investment expecting it to fail. Losses will come, and they will come at the worst times. This is why it's important to understand capital recovery.

So What Is Capital Recovery?

Capital recovery is when your original capital investment is returned to you at some point during your investment's lifespan.

Example

Let's say you invest $10 in your neighbor's lemonade stand. The $10 is your original capital investment.

You withdraw your investment, but when you withdraw it, it's only worth $5. The $5 you lost from your original capital is your 'capital loss'.

What if you closed the investment with $10? You now have a capital recovery, meaning that you closed with the amount you started with.

Lastly, what if you closed the investment with $15? In this case, you've earned $5 from your original starting capital. This is what we call a capital gain.

A capital recovery calculator is a tool that helps you determine when to expect a capital recovery to happen.

It is important to know an accurate timing for your capital recovery. This way you can know when to expect a return of your original investment. This is a key factor one should always consider when deciding when, and if to withdrawal the investment.

Anyone could experience financial loss and some point in their fiscal life. Knowing when a capital recovery is going to occur will also help you determine whether or not you should add additional funds to your original investment.

Yes! There is a light at the end of the capital loss tunnel my friends.

The US government wants you to make investments in new and growing companies. How else would the economy grow? If no one invested in Microsoft, you wouldn't have that computer you're looking at right now.

It only makes sense for the government to offer an incentive to investors. What better way to do that than through a tax break?

There is a catch, though.

Losses can only be considered towards your income tax bill if there are "realized". An investment becomes realized once it has been sold.

So for instance, if you are holding onto a losing stock into the new calendar year, that stock is no longer considered a deduction for the prior year.

Investment loss is when a stock is closed at a lesser price than what it was originally purchased. It's calculated by subtracting the initial purchase price from the selling price.

If the remaining balance is negative, you have an investment loss or capital loss.

Yes. A stock can be bought or sold at any time.

That's the beauty of the stock market. It's also another reason why it's important to use the capital recovery calculator.

Now, I know what you're thinking.

"What if I just sell this stock, take the loss as a tax deduction, then buy them right back." Win. Win.

Sorry to burst your bubble, but Uncle Sam thought of it first. It has long since been named a "wash sale." To prevent this, any stock sold for a loss and then purchased back within a 30 day waiting period cannot be claimed for tax purposes.

Just like for any recovery, the first step is acknowledging that you have a problem. Be sure to examine it from all angles to make sure that there is no way out.

Then, use the capital recovery calculator to see how long it will take for a capital recovery. You'll need to decide if it's worth it to wait for the recovery, or if you think it will ever happen.

Sometimes your investment will never reach a capital recovery and you'll just need to accept the loss. If this is the case for you, don't forget to deduct it from your income tax.

Every investor should find their own risk management strategy. Never risk more money than you can afford to lose. That means don't risk your child's college fund no matter how sure you are of an investment!

Remember that if you purchase a stock that doesn't quite turn out how you predicted, you're going to at least want to try for that capital recovery.