Right about now, investors and advisors are kicking themselves for not having sold about two weeks ago. Some are still considering selling. Investors who say the thought hasn’t crossed their mind are probably lying to themselves.
It’s easy to say to ourselves, “I KNEW I SHOULD HAVE SOLD!” because hindsight is always 20/20. But the truth is, we didn’t know because we can’t know. That’s truly the toughest part of my job. I live, eat and breathe this stuff and I am continually surprised. Remember when we were surprised that 2019 returned 30%? A distant memory, I know. It was still surprising.
We’ve been saying for quite some time now that it would be something totally unexpected that would take the market down. I sure think coronavirus fits the bill in that regard. What a shock.
We used to think the market moving 500 points in a day was significant – now it’s moving in 1,000 – 3,000 point chunks. Hard to believe.
All that said, it’s okay to be fearful. It would be unnatural if you weren’t at least a little afraid of what’s to come. So, I thought in lieu of offering the same old song and dance of stay the course that it might be helpful to explore what can you do in times like this? Sometimes, taking some action (any action) can quell the fears because you are doing something other than just sitting on your hands during hard times. Here are a few ideas.
1. Tax Loss Harvesting
Did you have some positions in your taxable account that you were wanting to change but didn’t for tax reasons? Now might be an opportune time to make the change while taking advantage of the tax situation. If you are happy with your overall portfolio, you still may purposefully harvest some losses by exchanging into other funds.
2. Rebalance Your Portfolio
During market swings like we’re experiencing, a 70% Equity / 30% Fixed-Income portfolio can easily become 60% Equity / 40% Fixed-Income. If you feel comfortable reducing your fixed-income position (assuming you aren’t relying on this as your income bucket), you may sell some fixed income and buy your equities to bring your allocation in line with your Investment Policy Statement. Rebalancing may be your opportunity to follow the age-old advice of buy-low, sell-high.
3. Convert Your IRA
The best time to convert your Traditional IRA to a Roth IRA is when the market is in the tank because you are potentially getting more future bang for your current buck. On top of that, you may be able to liquidate some of your taxable account at tax-neutral or better rates (assuming some positions have losses) to pay the taxes. In other words, you may increase the value of the conversion.*
4. Front Load IRAs and 401ks
If you have the cash on hand to fully fund your IRAs, you may consider doing that. You may do the same with your 401k, but you will want to confirm you don’t miss out on matching contributions if you front-load it. Ask your HR department if they will “true-up” the matching at year-end. It could be a great opportunity to take advantage of the market.
5. Put Some Cash to Work
If you’ve been sitting on some cash waiting for your entry point to put some money to work, now may be a good time to consider. It may be a little early still – nobody knows – but the question isn’t where the next 10% move is going to be but where the next 100% move is going to be. I’m pretty confident in that answer. If not now, when?
There are surely other ideas out there, but I think these are the big ones. If you have questions or just want to talk through your situation, feel free to reach out.
Thanks for reading.
This post is not advice. Please see additional disclaimers.
*Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
Join the Retirement Field Guide Newsletter
Subscribe below to get Ashby's list of the best retirement resources from around the web.
I am a Financial Advisor in Pittsburgh and a CERTIFIED FINANCIAL PLANNER™ professional with Shorebridge Wealth Management. I enjoy helping clients and readers find sensible answers to retirement’s big questions. If I can answer any questions for you, feel free to Contact Me or if you think you might be a fit for our practice, see Who We Serve.