Seizing Opportunity with Joe Ibarra, CPA

Joe Ibarra, CPA, an associate director of Financial Planning Group here at?Falcon Wealth Advisors, joined me on a recent episode of?Upticks?to discuss how you can seize opportunities during this market environment. Joe’s Certified Public Accountant credential is useful when helping our clients with tax planning, as well as retirement planning more broadly. Joe is also a licensed Financial Advisor, allowing him to serve as an extension of me and Falcon Wealth Advisors Co-Founder and COO Cory Bittner, CRPC?. To learn more about Joe’s background, make sure to tune into Upticks. A summary of our conversation is below.

Jake:?At?Falcon Wealth Advisors, we see opportunities today, including in this current market correction. Can you talk more about our investment philosophy?

Joe:?Because we actively manage our clients’ portfolios, we’re able to take advantage of opportunities as they arise. While we don’t advocate for making sweeping changes to your financial plan based on the market’s recent performance, we also don’t believe in sitting back and letting opportunities pass us by.

Jake:?What are some current opportunities investors should consider? I do want to note you should work with your fiduciary Wealth Advisor and tax professional before deploying any of the strategies and tactics we discuss today.

Joe:?The first opportunity we should discuss are Roth conversions. Converting money from a pretax account—like a traditional IRA—to a Roth IRA can potentially help ensure you are in a lower tax bracket in future years, compared to if you left your money in a pretax account.

You can not only convert cash into a Roth IRA, but you can also convert stock. Converting depreciated stock in a year like this one can be particularly advantageous. If you own a stock that is down, but still have a positive long-term outlook for it, you and your Wealth Advisor may want to consider converting those specific shares. When the market hopefully rebounds, the gains from that rebound won’t be taxed, as they will be in a Roth account.

Jake:?We often see clients who have significant amounts of money in a traditional IRA, which, as we mentioned, is funded with pretax dollars. Why can this present challenges? When someone turns age 72, the IRS begins requiring them to take Required Minimum Distributions (RMDs) from pretax accounts, and when these RMDs start they are often around 4% of the portfolio’s value. Needless to say, RMDs can push retirees into a higher tax bracket than where they want to be. That’s why it can be advantageous to convert money from a traditional IRA to a Roth IRA before turning 72.

You make a good point about converting stock into a Roth IRA. Before pursuing this tactic, we will review your 2021 tax return to make sure we’re giving you what we believe is the most prudent guidance.

What’s another opportunity we should discuss, Joe?

Joe:?Investors should consider the opportunity to use cash they have on hand to potentially put themselves in a better long-term position. If you have some cash in an account that you don’t need for short-term expenses, now is the time to put that cash to work and buy stocks that are ‘on sale.’

When you buy stocks in a downturn, you’re not only able to get them cheaper, you’re able to buy more shares. From a long-term investment outlook, the more shares you own, the better.

Jake:?Cory has talked about how stocks are one of the only things people don’t want to buy on sale. If you know you want to own stocks, why not buy them when they’re on sale?

What’s the next opportunity we should talk about?

Joe:?Let’s dive into tax loss harvesting. We usually wait until closer to the end of the year to look into tax loss harvesting for a client, as we have a better understanding of their tax picture at that time. But with the market down right now, it can be a potentially opportune time to execute tax loss harvesting, which involves selling stocks to offset taxes you will have to pay on gains in your portfolio.

Jake:?Yes, you just have to be careful and try to avoid selling a stock that will rebound quickly, as it’s important to note that if you pursue tax loss harvesting and sell a stock, you are unable to buy it (or sometimes stocks from similar industries) for 30 days.

But for our clients who will have to sell some of their company stock in the coming months, tax loss harvesting can be an effective tool to offset some of the taxes they owe.

Let’s please talk about inflation, Joe.?

Joe:?Yes. Obviously inflation can negatively impact us as consumers, but it can produce opportunities for investors. An example are the inflation-adjusted?Series I-savings bonds?that are sold by the US Treasury. They are currently yielding around 9 percent, which is of course appealing. Still, there are some important details you need to know before purchasing:

• You must hold I-bonds for at least one year
• You are penalized if you sell them within five years of purchase
• You are not allowed to purchase more than $10,000 worth of I-bonds each year;
• You have to purchase them yourself, though our team at?Falcon Wealth Advisors?can help walk you through the process.

Despite all the rules and details associated with them, I-bonds present an interesting opportunity during periods of inflation.

Jake:?It is indeed an interesting time to consider I-bonds, as 9% is an intriguing interest rate. And it’s worth noting that if you’re married, you and your spouse can each buy $10,000 worth of I-bonds in a calendar year.

Still, it’s critical to make sure you go through the process correctly when you buy them, as it can be confusing. If you have cash built up but don’t necessarily want to invest it in the market, I would suggest considering a Series I-bond. If you are a client with questions about them, don’t hesitate to contact our team at?Falcon Wealth Advisors?today.

Joe:?Well said, Jake. Let’s discuss a couple big picture topics. I believe a downturn is when our firm can add a lot of value for clients. It’s easy to do well in a bull market, but a bear market highlights the importance of having a financial plan in place—and sticking to it. A bear market offers us at?Falcon Wealth Advisors?an opportunity to compare our performance to the overall market’s performance.

Jake:?I’ve had some great client meetings lately, and while it’s not fun to review a portfolio that is down in value, I’m pleased clients recognize that the stocks we have bought are—generally speaking— often outperforming the overall market by 3-5%. I encourage any?Falcon Wealth Advisors?client reading this to ask how their portfolio is doing compared to the overall market. I believe we have saved many clients thousands of dollars this year, compared to if they were invested in, say, index funds that mirror the overall stock market.

At?Falcon Wealth Advisors, we value risk reduction. I’ve been disappointed to meet with some potential clients and find out they’ve been overexposed to risk when working with other advisors. If you’re retired or nearing retirement, you have already done the hard part by working and saving for decades. What we try to do is ‘make the dips shallower’ by constantly assessing how we can reduce risk in portfolios.

Joe:?Indeed. And it’s also important to take a step back and examine how your financial plan is doing. We build nearly all our clients a customized financial plan, and those plans take downturns like this into account. There’s no need to question the entirety of your financial plan during periods like this one, because we have prepared it for market downturns.

Still, we view financial plans as living documents, and there are sometimes actions we can take during times like this one to improve your financial outlook. If you have questions about your financial plan, please don’t hesitate to contact?Falcon Wealth Advisors?today.

Jake:?Yes, and I would like to share a real client story. I recently met with a client who noted even half a percentage in your return—whether up or down—can have a sizable impact on your long-term financial plan. That’s true, I reminded him that the portfolio projections in your financial plan can vary day to day, and that a financial plan should be able tell us if we’re on the right track, regardless of market conditions. I find many of our clients feel more confident about the future after meeting with us to review their financial plan.

Joe:?Correct. Financial planning is not a one-time exercise. There are usually opportunities to seize if your portfolio is being actively managed. That’s why we love what we do at?Falcon Wealth Advisors.

Jake:?Thanks so much for joining me, Joe. If you’re reading this and want to discuss how you can seize opportunities, please contact?Falcon Wealth Advisors?today. You can reach me directly at?[email protected].

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

?Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.