No one can deny that we are in the thick of things right now. Between a global pandemic, economic worries, and political uncertainty, it’s no surprise that we are seeing increased market volatility. All of this uncertainty may be causing you to wonder, “How will this affect me?” or “Will my portfolio recover?”
While the severity of these events is not to be minimized, we can battle fear and anxiety by going beyond the headlines and educating ourselves with the facts. With that in mind, here are 5 financial actions you can take during these turbulent times.
1. Touch Base With Your Advisor
Your financial advisor is educated about what’s going on and will be able to give you clarity on exactly what is happening to your portfolio. Your advisor has likely been through market turmoil before and can help you feel confident that you have a well-balanced portfolio, built based on your needs and your risk level.
2. Look For Opportunities
This quote by Warren Buffett is all too applicable: “Be fearful when others are greedy and greedy when others are fearful.”
In every stock market downturn, opportunities are waiting for those with the right perspective to see it. Where many people go wrong in volatile times like these is selling near the bottom of a bear market, staying on the sidelines during a good portion of the recovery, and then jumping back in closer to the next top. Put that together, and you not only lose money but also lose out on potential growth and compound interest from the time you were out of the market. Emotional investing will cost you.
It may seem counterintuitive, but keep investing consistently. When stock market prices are down, think of it as an opportunity to snap up some bargains before the recovery takes place. In the previous market crash of 2008/2009, the people who continued to invest strategically made a significant return on their investment.
3. Minimize Taxes
Tax-loss harvesting is the strategy of selling a security that has experienced a loss. By realizing a loss, investors can offset taxes. The sold security is usually replaced by a similar one to maintain the desired asset allocation and expected returns. With the markets hitting low points, it might be an ideal time for you to sell something and take the loss, but then buy something to participate in the market’s recovery. If you look for the opportunity to invest in something similar or rebalance, you win and have a tax deduction to use for this year and potentially even future years.
Before doing this, talk with your advisor about how much of a difference this could make on your financial plan.
* This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
4. Look Into A Roth Conversion
Market downturns can be the perfect time to convert to a Roth IRA and pay significantly less in taxes, not to mention we may be at the lowest tax rates we will see in our lifetime. Let’s say you have an IRA that used to be worth $100,000 and is now worth $75,000. You could convert this position now and pay less in taxes than what you would have paid when it was worth $100,000…25% less.
There are many factors to consider when deciding if a Roth conversion is right for you, such as your current income versus your expected retirement income, your projected minimum required distributions, the tax implications, current liquidity, etc. Making this decision is something you should discuss with your advisor.
* Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regard to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
5. Consider Your Options
A few other opportunities you could take advantage of with lower interest rates and stock prices are the following:
- Weigh the pros and cons of refinancing your home.
- Purchase future travel at a discount.
- Fund a 529 for your child’s college tuition with low market prices.
- Refinance any outstanding debt.
- Buy a home at a discount if you are currently renting.
Are You Ready To Take Control?
When this market volatility has passed (and it will), some will lose, some will break even, and some will get ahead. We at Whittenburg Wealth Partners want to see you get ahead, and we welcome the opportunity to help you make decisions that will enhance your finances so that when we go back to our regular routines, we do so with more clarity and confidence. To get in touch, easily schedule a no-fee, no-obligation virtual appointment or contact us at 801-839-7050 or firstname.lastname@example.org.
Austyn Whittenburg is a wealth planner and partner at Whittenburg Wealth Partners, a family-owned and family-operated financial and wealth management firm located in Salt Lake City, Utah. Austyn has 7 years of experience as a wealth planner and spends his days helping business owners, emerging successful families, and their ensuing generations simplify their financial lives and discover meaningful solutions. Austyn received a Bachelor of Science in Finance from Brigham Young University and holds the Certified Financial Planner™ (CFP®) and Certified Business Exit Consultant (CBEC®) credentials, his FINRA Series 7 through LPL Financial and 66 registrations through LPL Financial and Stratos Wealth Partners, and his life, health, disability, and annuity insurance licenses. Austyn is active in his community of Herriman, Utah, where he resides with his wife, Ciera, and two young sons, Grayson and Graham.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.