# Navigating Stock Investments and Capital Gains in a Volatile Market

Investing in stocks can be a rewarding yet complicated financial endeavor, especially when you're dealing with scenarios like the one presented here. The situation involves a substantial investment in a stock, fluctuating market prices, and a strategy that aims to manage capital gains and losses. To make informed decisions in such situations, it's essential to understand how your capital gains work and the potential tax implications involved.

## Dollar-Cost Averaging and Its Implications

Before we delve into the specifics of your situation, let's discuss the concept of dollar-cost averaging. Dollar-cost averaging is an investment strategy that involves buying more shares of a stock at different prices over time. In your case, purchasing an additional 1,000 shares at a lower price effectively reduced your average cost per share.

When you initially bought 1,000 shares at \$10 each, your dollar cost average was \$10 per share. However, after purchasing 1,000 more shares at \$5 each, your new average cost per share became \$7.50. This concept is important because it plays a significant role in calculating your capital gains or losses when you sell your shares.

## Calculating Capital Gains

To determine your capital gains, you need to understand the difference between the selling price and the adjusted cost basis. In your scenario, you plan to sell 1,000 shares of stock X at \$6 per share. The adjusted cost basis for these shares is the new dollar cost average of \$7.50.

Capital Gain = (Selling Price - Adjusted Cost Basis) x Number of Shares Sold
Capital Gain = (\$6 - \$7.50) x 1,000
Capital Gain = -\$1.50 x 1,000
Capital Gain = -\$1,500

So, when you sell 1,000 shares at \$6 per share, you will incur a capital loss of \$1,500.

## Managing Capital Gains and Losses

Now, let's consider your overall strategy. You mentioned that you have a relatively high W-2 income and some short-term capital gains from other stock trades. If you have a capital loss from selling these 1,000 shares of stock X, it can potentially offset some of your other short-term capital gains, lowering your overall tax liability.

Additionally, if you anticipate that the stock's price will rise slightly between now and December 31, you might consider buying more shares today, as you mentioned. This could allow you to capture some gains that might counterbalance your initial capital loss when you sell the 1,000 shares at a later date. However, predicting the stock market is inherently uncertain, and there are risks involved in this strategy.