In times of stress, most investors feel like they need to do something. Anything. Sitting back and being patient for things to get better after experiencing losses like last week isn’t easy. At the same time, the worst thing to do is overreact because stock market history also tells us, what came down, will over time, come back up. Yes, you’ve heard me say “stay invested, stay diversified, and trust your plan” 1,000 times before, so that’s nothing new. And yes, I’ve shared statistics and context to try to keep this pullback in perspective. But what really matters, is your own financial plan.
With that in mind, here are 3 next steps I’d consider you take that are designed to help you benefit from temporary lower asset valuations based on typical market downturns.
- At the very least, consider rebalancing your portfolio. While not always easy to do, ignore the impulse to sell when the market dips. In fact, do the opposite. Rebalance your portfolio to buy more of those “undervalued investments.” This may be a buying opportunity for you.
- Consider a Roth IRA-Conversion*. Roth accounts allow assets to grow tax-free, for your lifetime and your heirs. You’ll have to pay income taxes though, on the amount you convert, at the time of conversion. So why not convert after a market drop when the value is lower? You will be able to have more of your Traditional Pre-Tax IRA assets placed into a Roth for a given tax cost. When the stock market eventually rebounds, the growth will now be under the umbrella of your tax-free account.
- Call your Financial Planner. Sometimes it’s good to just talk things through. And maybe there are other pieces of advice to come from that:
- Let’s review your risk score. When’s the last time we reviewed Riskalyze together? If we’re not working together, have you ever done a risk assessment like this?
- Let’s review your cash reserve. Do we need to restructure your cash reserve to be sure you have enough set aside during these downturns? Better yet, do you have extra cash to invest at these new prices?
- Let’s review your gifting plan. Do you want to make a stock gift to the grandkids at these lower prices, so they receive more shares?
- Do you not have a financial planner? We’d be happy to meet you.
No one likes to see portfolio losses, even if short-term. So, my pitch of making lemonade out of lemons, admittedly, still means you’re dealing with lemons. But financial planners like us are trained to develop strategies for any environment good or bad, in an attempt to keep you on your path forward. Sometimes you have to zig when others zag and make lemonade out of lemons. It’s one of the many ways we try to help.
*With this strategy it is important to note that 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.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
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