We have all felt some level of discomfort with the market plunge this year. There could be moves to make if you’re in a position to do so, however, to take advantage of the downturn.
If you have extra income, consider increasing the systematic contribution (dollar cost averaging) into your accounts, including your retirement accounts, which you could “front load” while prices are down. If you aren’t currently contributing systematically to your investment accounts, consider beginning. Investing a specific dollar amount on a regular interval, generally per-paycheck or monthly, no matter what the market is doing, builds share ownership without having to think about it. When prices are lower, as they are now, you purchase more shares than when prices are higher. When the market recovers, you will own more shares to capture that next upswing. A great analogy is that of a sale at a retail store. Customers stock up on the items they already use. However, when it comes to the market, the tendency is often to do nothing, or worse, to sell. Go against the grain and buy. Your future self will thank you.
If you’re retired and in the ‘sweet spot’ before Social Security & Required Minimum Distributions, or if you aren’t but are in a low tax bracket, consider transferring positions from your IRA to either your taxable account or a Roth IRA. You will be able to move significantly more shares within each tax bracket. Be aware that while there are advantages to this strategy, there can also be unintended consequences such as increased capital gains tax, Medicare adjustments, and a larger percentage of your Social Security being subject to tax. Therefore, we recommend discussing with an Advisor before making any decision.
Another strategy to use when stock and fund prices are down is to gift shares. With a $16,000 per year limit on gifting to any individual, we are able to gift more shares now than last year when the prices were up. When the market recovers, the gift recipient owns a more valuable asset by holding it during the recovery.
Be bold and find the silver lining. Those who seek opportunity during tough times will be rewarded in the long-term.
Let us know if you would like to schedule a time to discuss any of the strategies above to see if they make sense for you.