What Can You Do In A Market Downturn?
Did You know that dating back to the 1950’s the Stock Market has experienced a decline of 10% or more roughly every 1.8 years?*
Something we think many investors can agree on is that generally speaking, downturns in the stock market whether they be considered pullbacks, corrections, or crashes, can be nerve-wracking.
Although one’s natural instinct might be to shy away from the situation or ignore their portfolio all together, there are actually a multitude of strategies that can be taken advantage of during the downturn.?
In today’s blog, we’re going to discuss 5 Financial Strategies you can use to be proactive during a market downturn.
A quick disclaimer before going through some of these strategies: Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
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Tax Loss Harvesting:?
The first strategy we want to discuss is potentially turning investment losses into tax advantages.?
When the stock market drops, some of your investments may lose value and by selling them at a loss, you can use that loss to offset gains from other investments or even up to $3,000 of regular income per year.
Here’s the benefit: you’re effectively reducing your tax liability while also being able to reinvest the proceeds into potentially better-performing assets or even buying back similar investments after the “wash-sale period".
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Consider a Roth Conversion
Our second strategy is to consider converting your traditional retirement account to a Rtoh account.
The thinking here is that your traditional IRA or 401(k) might have dropped in value during the decline, while you maintain the same number of shares.
When you convert the pre-tax money to Roth, you’re taxed on the current, lower balance rather than the higher value it might have had earlier.
Over time, if the market recovers, all future gains within the Roth will grow tax-free.
In addition, as you may know, Roth accounts offer tax-free withdrawals in retirement which could prove to be a benefit to you as well.
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Potentially Allocate More Capital:
Strategy number three is to put your cash to work amidst the volatility. When markets fall, prices are lower, meaning you can buy more shares with the same amount of cash.
If you’ve been holding onto cash for the right moment, a downturn could be your chance to buy high-quality investments at a discount.
We never suggest trying to “time the market” but having a strategy at hand where you can potentially add more money into your investment account when stock prices dip, may be helpful overtime.
Rebalance Your Portfolio:
Our fourth strategy is to consider if rebalancing your portfolio might be beneficial.
A stock market downturn is a great time to assess how balanced your portfolio is and how you really feel about the potential for volatility.
If you're too concentrated in one sector or asset class, a downturn can be a wake-up call to spread your investments across various industries or financial instruments.
Diversifying your portfolio can help reduce risk because when one area of the market drops, others may hold steady or even rise.
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Consider Gifting or Transferring Wealth
When we look at a client’s financial plan, two of the most instrumental aspects we consider are Tax Planning and an Estate Planning Review.
It’s actually estimated that ~$84 Trillion in assets are to transfer to younger generations over the next 20 years which makes Estate Planning Reviews especially more significant.**
That being said, our fifth strategy is to gift or transfer wealth during a market downturn where you may find the value of your investments to be lower than they were prior to the downturn.
If the market rebounds, the growth will be in your beneficiaries' hands, and you’ve transferred those assets at a potentially reduced tax cost.
This is a strategic move when thinking about the generational transfer of wealth.
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The Final Word:
Whether it's tax-loss harvesting, investing additional money as the market dips, or tax and ?estate planning reviews, these strategies can help bring confidence during a time of uncertainty.
As always, consult with your financial advisor and tax professional to see which of these strategies might be right for your situation.
Thanks for Reading!
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Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.
The opinions expressed and material provided are for general information, and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.
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