Change is hard on everyone. And the changes that are happening daily due to the coronavirus pandemic, not to mention the roller-coaster ride our markets are on, are disrupting our lives, causing us to feel uncomfortable and worried about the future. But just as with previous financial crises and other health outbreaks, this will pass. In the meantime, there are certain measures you can take to give you peace of mind now, as well as opportunities for you to improve your financial picture and make positive changes that could benefit you for years to come.
Here are 5 financial actions you can take during these turbulent times.
Don’t Let Market Volatility Paralyze You
In every stock market downturn, there are opportunities waiting for those with the right perspective to see it. Where many people go wrong in volatile times like these is selling near the bottom of a bear market, staying on the sidelines during a good portion of the recovery, and then jumping back in closer to the next top. Put that together, and you not only lose money but also lose out on potential growth and compound interest from the time you were out of the market. Emotional investing will cost you.
Right now, good-quality stocks are significantly down from their highs, meaning you have the opportunity to snap up some bargains before the recovery takes place. Start discussing ideas and asking questions about how you should take advantage of this stock market downturn.
Consider Tax Loss Harvesting
Tax loss harvesting is the strategy of selling a security that has experienced a loss. By realizing a loss, investors can offset taxes. The sold security is usually replaced by a similar one to maintain the desired asset allocation and expected returns. With the markets hitting low points, it might be an ideal time for you to sell something and take the loss, but then buy something to participate in the market’s recovery. If you look for the opportunity to invest in something similar or rebalance, you win and have a tax deduction to use for this year and potentially even future years.
Look Into A Roth Conversion
Market downturns are the perfect time to convert to a Roth IRA and pay significantly less in taxes, not to mention we may be at the lowest tax rates we will see in our lifetime. Let’s say you have an IRA that used to be worth $100,000 and is now worth $75,000. You could convert this position now and pay less in taxes than what you would have paid when it was worth $100,000…25% less.
There are many factors to consider when deciding if a Roth conversion is right for you, such as your current income versus your expected retirement income, your projected minimum required distributions, the tax implications, current liquidity, etc. Making this decision is something you should discuss with your advisor.
Even if you’re working from home, most of us have more time on our hands with the absence of commuting and social engagements. Think about what you can do now that will have a big impact later, like starting your estate plan. Or if you have done some planning, dust off the old documents and verify whether the people you originally listed as successor trustees or your personal representatives are still appropriate.
And be sure to check your beneficiaries. With the recent changes from the SECURE Act, the stretch IRA rules are different. This may affect the way your estate is handled. Are your assets set up to benefit your children and grandchildren while staying protected from predators, creditors, and disgruntled spouses?
Finally, ask yourself: Are my important documents organized and readily accessible to a trusted contact? Would they know where to look if I were unable to act? Are passwords and instructions available for my spouse or children to access if need be? These are often things on our to-do list that seem to always get pushed back to a later date. Take the time now to organize this important part of your life.
Review Your Investment Allocation
Individual securities, ETFs, separately managed accounts…there are many choices out there for investors looking to take advantage of the market decline. But be cautious of investing non-IRA funds in a mutual fund that may pay large capital gain distributions at the end of the year; many funds will—that’s what happens in bear markets. These distributions have the potential to significantly impact your taxes. We can help you make the right choices so you don’t face tax consequences down the road.
We Are Here To Help
When this market volatility has passed (and it will), some will lose, some will break even, and some will get ahead. We at Sirius Wealth Management want to see you get ahead, and we welcome the opportunity to help you make decisions that will enhance your finances so that when we go back to our regular routines, we do so with more clarity and confidence. To get in touch, email us at email@example.com or call 636-449-4890 to set up a phone or virtual appointment.
David Domian has been working in the financial services industry since 1980 and specializes in financial planning with a focus on retirement planning. His planning concentrates on four specific goals: the accumulation of wealth, the reduction of taxes and volatility in retirement, the necessary strategies to deal with the risks of longevity, and the passing of an estate in a private, tax-efficient, and protected manner. David holds designations as a CFP® CERTIFIED FINANCIAL PLANNER™, ChFC® Chartered Financial Consultant, CLU® Chartered Life Underwriter, and AEP® Accredited Estate Planner®.
David has been married to his wife, Sue, for over 41 years, and together they have four children and eight grandchildren. Dave is a big believer in family and still has family dinners almost every Sunday with most of his kids, grandchildren, and even his 97-year-old mother. Dave and Sue have lived in St. Louis all their lives. He enjoys spending time outdoors, especially fishing with his grandchildren; he knows they will only be young for so long and you have to live in the moment. This year will be Dave’s 18th annual cross-country motorcycle trip with three college friends; together they have traveled through over 40 states on these memorable road trips.
Dave and Sue support many charitable organizations, including the MS-Society, Cystic Fibrosis, the Lupus Foundation, St. Louis Men’s Group Against Cancer, and the Mary Culver Home for vision-impaired women, where his mother lives. Their support comes in an unusual way: Dave and Sue donate a BBQ (including a pig roast, cooked, carved, and served on site), which is auctioned off at one of their live events. This popular auction item is a great way for Dave and Sue to have fun and do some good in the community. Dave also serves as a board member on the Estate Planning Council of St. Louis.