It’s no surprise to state that the markets have been rather treacherous as of recent. Between Ukraine, growing tensions with Russia, severe inflation, supply chain issues, and the Fed’s recent rate hike; it really has not stood a fighting chance. Oh…and wait…I almost forgot. This is an election year. Volatility is here and it might be here to stay a while.
If you want to know what to do about your current investments, I encourage you to listen to last week’s “Black and White Market Chatter” on our Life Planning 101 podcast. Our Charted Financial Analyst®, Aaron Kennedy, spoke about this very thing in his usual no-nonsense style and it basically boils down to this: The current market volatility is actually a breath of fresh air.
So, if this volatility is healthy and much needed, one question remains: What opportunities should you be looking at? Our theme during the height of the Pandemic in 2020 was “A Crisis Is a Terrible Thing to Waste.” This time is different as it always is in every crisis. Nonetheless, it would still be a terrible thing to waste, so let’s get to it. What opportunities exist?
#3 Spring Harvest…2020 was the last time you were probably able to do some spring cleaning in your portfolio and save some tax dollars now or in the future. Although that may seem like yesterday, the markets have been on fire over the past two years. Forget the 30+% decline in the S&P 500 at that time and you still saw appreciation over 11% a year. It has been many years since the markets have provided us with much opportunity to do some “tax harvesting.” Another bonus here is that big returns in the market have created a hidden risk for a lot of investors due to being over-weighted in certain areas and a harvest season may be the perfect time to make sure your investments are in-line with your goals and your risk.
#2 Cash is king…Are you selling a business or some real estate? Do you have some cash or CDs that need to be put to work? I don’t know about you, but I like to buy things when they are on sale. We are beginning to see interest rates rise and reveal some short-term opportunities to help us better fight inflation and some amazing opportunities in pricing discrepancy among stocks. Who knows? You may be able to take a cash offer on a long-waited sell for a little less just because you can buy something on the flip side for a little less. Napoleon Hill once said... “Opportunity often comes disguised in the form of misfortune or temporary defeat.” The best thing you can do is ask about it.
#1 Free Money…There is no such thing as free, right? It depends on how you look at it. If you bought 100 shares at $10 per share in an IRA, you would have $1,000. If you subsequently took this out of the IRA, you would have $1,000 of taxable income. Now, let’s imagine you did not take it out of your IRA. Instead, your investment went down in value. It’s now worth $8 per share. Let’s also imagine you recognized the opportunity to convert these shares to a Roth IRA. You then pay tax on $800. Eventually, the investment rebounds to the $10 per share. Voila! That sounds like free money to me. But wait! There is a bonus…
Now that you know the basic concept of “Free Money,” it’s time to talk about the Secure Act again. This was the legislation that was swept under the rug as COVID took precedence. The Act was passed at the end of 2019 in an effort to raise the taxes on IRA and other qualified money. If you aren’t familiar with it, read this. The thing is, the government also provided you with a choice in the matter. Essentially, you can pay less in taxes and your kids can pay less in taxes. And since your grandchildren are your favorite anyway, their inheritance is tax-free. How? That’s where we come in.
Michael Josephson, who is the author of one of my favorite poems—What Will Matter, stated, “No opportunity worth seizing is going to knock on your door. Opportunities are everywhere, but like hidden treasures you have to find them.” Now that you have found them, what will you do about it? Remember that the market often climbs a wall of worry. And if you blink, you might just miss the opportunity you found.
Past performance is not indicative of future results. There are no guarantees, implied or otherwise, of any investment performance in conjunction with these strategies.