Weekly Access

5 Financial Opportunities in a Down Market

By Alynne Zielinksi, MBA, CFP®, CDFA - Manager, Financial Planning

In times like this, it is natural to feel overwhelmed, stressed, anxious, nervous, uncertain.  Name a negative emotion and everyone has likely felt it at least once over the last two months.  No individual has control over the market, no doctor has an exact time when the pandemic will end, and everyone is left wondering when we can hug our families again.  During these times it is easy to fall into a downward spiral of negative thought and emotion, wondering if there is anything we can control.

For many, investing is emotional too.  Taking a disciplined approach and knowing how to take advantage of situations is critical.  Removing emotion from the decision-making process can help give investors some measure of control over the future. In this unprecedented environment here are a few strategies to think about implementing.

1. Tax Loss Harvesting.

In taxable accounts, consider selling some securities that have experienced a loss. By realizing the loss (harvesting), taxes on both short and long-term gains as well as income are offset. When looking for investments to harvest, consider those that may not fit your strategy or that can be easily replaced by similar investments. Before harvesting please keep in mind:

  • The tax code mandates that the loss you harvest must first be used to offset a gain of the same type. You could do yourself a disservice by harvesting short-term losses when you only have long-term gains.
  • Capital losses are first applied to capital gains and then to taxable income.
  • The current tax code allows carryforward of any losses not used in the current year to offset future gains.  If you file a joint return, up to $3,000 of capital loss carryforward can be used each year to reduce your taxable income.
  • Avoid wash sales.  A wash sale is triggered when the security or substantially identical security is purchased either 30 days before or after the tax loss sale. 

2. Make Estate Planning Gifts Now

If there are assets in your portfolio you were considering gifting to the next generation, make that gift today. The value of your gift will be lower and may help you save on future estate taxes.

3. Rebalance your portfolio

With the downturn, it is likely that your asset mix may not be in line with your intentions. Equity prices have fallen much more than bonds possibly making you overweight in Fixed Income in your portfolio. Consider slowly rebalancing your portfolio by moving money from your fixed income investments to your equity holdings until you reach your intended allocation.

4. Dollar-Cost Average Back into the Market

If you have cash on the sidelines, create a strategy to invest a specific amount of money on a regular basis. This is how contributions are made to 401(k), 403(b) and 457 plans. Be the tortoise in this race. It isn’t necessary to get in at the bottom and have all funds invested before the top of the market. Having some cash left will allow you to take advantage of future dips in the market.

5. ROTH Conversions.

  • If you are age 70 ½ or older the SECURE ACT is working in your favor.  While taking RMDs it was likely financially imprudent to do a ROTH conversion on top of the RMD.  This gives you a chance to make one more ROTH conversion.  So, take the RMD and convert it to ROTH this year.
  • If you are expecting to be in lower tax bracket this year, then doing a ROTH conversion now can save on taxes later.  ROTH conversions are recommended when in a lower tax bracket.
  • Deflated asset prices can lead to a lower cost-basis on your ROTH conversion.  If any underlying holdings have taken a sharp turn down this year, it may be prudent to transfer those securities into a ROTH in order to take advantage of the low current price.  In this way, the ROTH converted securities have further to grow tax-free.

 

Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Aurum Wealth Management Group LLC [“Aurum]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Aurum.  Please remember to contact Aurum, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Aurum is neither a law Firm, nor a certified public accounting Firm, and no portion of the commentary content should be construed as legal or accounting advice.  A copy of the Aurum’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request. Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Sign up to receive our newsletters.

Subscribe ➤