No they don't, not if they have to spend the money now -- like on a down payment for a house.

There is literally no difference in wealth between losing $100K in cash or in stock, assuming the stock is liquid. They are equally "real", 100%.

And the wealth effect has literally nothing to do with this.

(Fine print: assuming your stock is no more than a small fraction of any specific company, and that these might have different effects on taxes. But the general point stands.)