Broker Check

Financial Opportunities of Today’s Market

March 26, 2020

You don’t need us to tell you that the markets are crazy right now. Between the coronavirus and the oil price war, there are a lot of factors influencing market activity in a very big way. While volatility goes hand in hand with investing, stomaching it can feel tough in times like these—especially if you’re relatively close to retirement. Our job as your trusted advisors is to make sure you don’t let this short-term fear lead to a knee-jerk decision that has a lasting negative effect on your portfolio.

We want you to thrive and prosper, despite all that’s going on. We’re continually reevaluating current market conditions and crunching numbers for our clients to make sure they fare as well as possible over the long term. While every portfolio is unique, here are a few points we’re driving home right now.

Keep Your Perspective

This isn’t the first time we’ve experienced a 20% dip in one calendar year. In fact, it’s the seventh time since the dot-com bubble. What’s more, we’ve also had years where the market declined into the 10% to 20% range. The key takeaway here is that even though the circumstances may be different, we have been in this territory before. And if the past is any indicator of the future, we will survive it.

Review Cash Flow Scenarios

Depending on your cash and bond positions relative to your spending needs, you may be able to sit tight without worrying too much about the stock market. Those who have sufficient income in their non-retirement accounts (cash, money markets, and municipal bonds) to support their annual draw for a few years likely have time to wait this thing out.

Tax-Loss Harvesting May Work in Your Favor

This strategy involves swapping a poorly performing security in a taxable account, at a loss, for a new, similar investment. From a tax perspective, you’ll benefit from the loss and can use it to offset capital gains. Another way you can come out on top is that you can offset your ordinary income if your losses are greater than your gains. You also have that similar allocation positioned for long-term growth, so for many, it’s a win-win.

It’s a Good Time to Review Asset Location vs. Allocation

Sudden, big movements in the market mark a good time to review your long-term allocation to make sure it’s still adequate for your timeframe and needs. If not, an adjustment is in order. Remember, when you ultimately have a cash need, you’ll reach first for your non-retirement accounts—not your traditional IRA or 401(k), which have taxable distributions. Put it another way: hold stocks in your retirement account and municipal bonds in your non-retirement account in order to defer risk.

Look to Any Open-Ended Mutual Funds in Non-Retirement Accounts

Folks who have an open-ended mutual fund sitting in a non-retirement account may be able to sidestep the inherent tax liability that comes with end-of-year capital gain distributions. How? By selling it with little to no gain, then using the proceeds to purchase a similarly structured ETF. If you’re in this boat, we can guide you in the process.

Focus on Improving Your Portfolio Yields

Investors who are heavy with taxable bonds right now may want to consider swapping some for preferred stock. Strong, noncallable preferred stock is available right now at a 5% discount with yields that are above 6%. You’ll also be setting yourself up to receive set dividends down the line. And noncallable preferred stocks cannot be bought back by the issuer at a later point; something to think about.

Play Around with the Idea of Roth Conversions

If you were already thinking about converting a traditional IRA to a Roth, now is the time. It will cost you less right now, thanks to stock prices being where they are, along with current tax rates being lower. A Roth conversion could also pay off when the market eventually rebounds and you have more tax-free gains on hand.

Front Load Your 529 Contributions

People who are saving for their kids’ or grandkids’ college in 529 plans should do all they can to front load their contributions now. Doing so means your earnings will be compounded for a longer period of time, and on more money. This could translate to a greater value waiting at the finish line. In other words, find the money!

Adjust Your Financial Plan to Reflect New Lower Balances

It’s vital that you rerun your financial plan using your current balances, which will likely be lower. Doing so may reveal that, despite the lower figures, you’re still on track for the long term—in which case, there’s no need to do much right now. Alternatively, you may find that some adjustments are in order. Your advisor can help you fill in the blanks and provide a customized analysis.