market downturn, financial planning

The Tough Get Strategic – Financial Strategies for a Market Downturn

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When the going gets tough, the tough get strategic. Headlines you read at breakfast might be contradicted by lunch, and the ups and downs of the market could give anyone vertigo. But now is not the time to panic – now is the time to take a deep breath and strategize.

Any farmer knows that dying corn stalks are part of the year. Any surgeon knows that scar tissue is part of the process. And any wise investor knows that down markets aren’t the end of the world, but part of the natural rhythm. What goes up must come down, and back up again, at some point.

There’s a lot to be done in this time. Warren Buffett’s advice to be fearful when others are greedy and to be greedy when others are fearful applies in some sense during even this dip, especially if done strategically. Let’s look at a few strategies for a market downturn that individual investors can embrace in this time.

What’s Your Re-fi Password?

The Fed cut interest rates to near zero, the second cut in two weeks, in an effort to free up money in the economy. At the time of this writing, the interest rate sits under 0.25%, which is the deepest and quickest rate cut since the financial crisis in 2008.

The response on a nationwide level has been mixed, with volatility rocketing back and forth. But on the level of the individual investor, this can be a great opportunity to refinance. Mortgage rates are hovering around 3.5% and banks are offering deals on other kinds of refinancing.

It’s a “debtor’s market,” if you’ll excuse the term, and now’s the time to think strategically about the money you owe.

Roth Conversions

For a lot of us, the possibility of a Roth conversion waits in the same dusty corner as getting that dentist appointment and checking the air pressure on our tires. The money involved seems distant (for some of us) – it’s numbers we see on our computer or paycheck, not cash in hand.

But a trough like this can be the best opportunity to act on a Roth conversion. As the market dips, your traditional IRA is going to dip along with it, which means you would pay less taxes on a Roth conversion. If you’ve been meaning to do it all year, now’s the time, especially because we don’t know how quickly this economic event will recover.

A Plentiful Tax Loss Harvest

Your portfolio might be bleeding from a few places – everyone’s is. Take a step back. Chances are, the damage is in part of your portfolio, however scary the prospect might seem, and some sectors are stable, even growing.

Tax-loss harvesting is a helpful and often underused strategy during down markets. Take an ailing equity and sell it at a loss, then take that tax loss and use it against an equity where you had a gain. Use your oil losses to offset your electric vehicle gains earlier this year, for example.

You can even let those losses roll year over year, which isn’t a bad idea in uncertain times. You might have some gains to offset if you invested in remote technology and delivery services recently! It’s a bit counterintuitive, but this is the kind of loss that can be good to have around.

Ticker Tape Rollover

A sub-strategy for tax-loss harvesting involves your losses on an index fund, and essentially relocating investments for better tax treatment. If you own an index fund from a certain firm that’s experiencing a loss, you can sell it, reap the loss and buy the same index fund again at a different firm with a different stock ticker.

Let’s say you have $10,000 in an index fund with a certain firm. This market loss hits this mix hard, as it will hit a lot of them, and you sell. You can reap the tax loss from that, and then re-invest that money in the same mix (different firm) and wait for the markets to come back up. Because, even in the worst of times, history has shown the old cliche true: Time in the market is better than timing the market.

Even on the Rainy Days

It doesn’t all have to be bad news – but it depends on your perspective. Remember, when the going gets tough, the tough get strategic. Try to see your way through the initial emotional fog around this downturn – things will become clear, and patience is your most important financial tool at the moment.

Your financial advisor is here to work through these options with you – and these are only a few strategies for a market downturn. Let’s talk through how we can help you.

Let’s talk!

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