Pay Dirt is Slate’s money advice column. Have a question? Send it to Kristin and Ilyce here. (It’s anonymous!)

Dear Pay Dirt,

My mother-in-law recently asked if I could help her with taxes. Since I didn’t have my laptop on me at the time, she just handed me the entire packet of paperwork, and I took it home. During the process, I noticed a five-figure short-term capital gains loss carried over from the previous year. This seemed quite unusual, given what we know about their finances and how incredibly conservative she is about investing. I followed the carryover back to a transaction in 2022. It seemed she had pulled most of her savings (a little under $300,000) out of the various (reasonable, diverse) investments it was in and reinvested in mostly treasury bonds. I think this was likely as a reaction to constant news coverage about drops in the stock market. Sadly, she did this at the lowest point of the market.

I’m especially angry because the money is managed by one of the largest consumer banks in the country, and the financial advisor should have explained the cyclical nature of the stock market to her, instead of just doing what she asked blindly. I remember she made a comment from back in 2022, when she was talking about moving money around. She said “I told him to invest as conservatively as possible,” but did not know the context until now. I am sure that if this advisor had explained the loss associated with the re-shuffle, she would not have done it. Since my in-laws don’t pay taxes (their taxable income is less than the standard deduction), they just lose $3,000 of the loss every year (so only about $17,000 of loss left at this point). I’m wondering if there is any strategy to recoup the loss? I haven’t mentioned any of this to her yet as my husband advised me not to, since she tends to be very anxious about money (she is terrified that someone is going to scam her). I’m not sure if she realized that she lost $31,000 when she moved money in that fashion (previous tax prep was done at the library through an AARP program). Is it worth mentioning if nothing can be done?

—With Advisors Like These, Who Needs Scammers

Dear Advisors Like These,

Your mother-in-law’s advisor may not have been malicious, but you’re right—they should have warned her about the consequences of selling off her investments.

For those who might not be in the know, a capital loss is what happens when you sell an investment for less than what you paid for it. Which, clearly, is not ideal. It’s also a pretty easy thing to avoid when it comes to broad, diversified, long-term investing. With that kind of investing—the investing that most of us should be doing if we want to retire someday—you generally keep your money in the market and wait for it to recover because, historically, broad markets have always recovered over time.

As you said, your mother-in-law took a loss. And if she had an income that put her above the standard deduction, that loss might come in handy because it could offset her taxable income or future capital gains, reducing the amount of tax she owes. As you pointed out, the IRS applies up to $3,000 of that loss each year. But because she had no taxable income, she missed out on the potential benefit of this, which makes the whole thing even more frustrating.

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But as far as I understand it, the capital loss is only used up if it actually gets, well, used. In other words, she should be able to carry over that loss to later years. I’m not a tax expert, though, so it’s definitely worth consulting a professional, like a fee-only financial planner or CPA, who’s familiar with the ins and outs of tax law. There might be a situation in the future where this loss would be useful, and that’s something a tax professional will have to help you navigate.

Talking to your mother in law about this might trigger her financial anxiety, but she should be in the loop about what’s happened. You’re right that a good advisor would’ve warned her against the dangers of selling low—so either they did warn her, and she didn’t heed their advice, or she needs a new advisor. I’d let her know you noticed something but make the conversation solution-oriented. “I’m glad you asked me to do your taxes because I noticed a loss from selling your investments. Did your advisor warn you about this? If not, let’s find a new one together.” From there, choose a financial planner that’s certified with the CFP board, not just one that comes with her bank account. Certified Financial Planners take a fiduciary oath to act in their client’s best interest—which is exactly what your mother-in-law needs.

—Kristin

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