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6 Best Strategies to Work Through the Crisis

Posted by Jim Kantowski, CFP®, CPA on March 24, 2020

“Am I going to be all right?” This question is what most people are trying to answer in the midst of current events. That’s completely understandable. That makes you human.

While the concerns you have should not be minimized, this is the perfect time to think of what you can do that is in your control. We all like having a little control in life, right? The following 6 points could be just what you need to focus on right now.

1. Check In With Your Advisor About Your Portfolio

Your advisor is knowledgeable about your personal situation and will be able to help you understand how your portfolio is invested, what effect it will have on your portfolio you’re your ability to reach your goals. This is an important first step since you should feel confident that you have a well-balanced portfolio, based on your needs and your risk level. Your advisor should not be providing predictions on the stock market!

2. Take Advantage Of Lower Prices By Maintaining Discipline

This quote by Warren Buffett is all too applicable: “Be fearful when others are greedy and greedy when others are fearful.”

It may seem counterintuitive, but the right answer is to continue to invest when stocks are down. The analogy that is typically used is to look at as that dream item you have been want to purchase for a long-time, but has been our of your reach. It has now come down in price which makes it a better opportunity to purchase. If we believe prices will go back up to where they were at sometime in the future, then this is a great time to invest.

We saw in 2008-2009 that the people who continued to invest consistently, buying at low prices, and maintaining discipline typically came out ahead.

3. Offset Future Capital Gains

One of the benefits of your portfolio going down is that you can recognize a loss for tax purposes. Recognizing a loss just means that an investment or asset is sold for less than what you bought it for.[1] The benefit of this is potentially saving money on taxes by offsetting future capital gains or $3,000 per year of ordinary income.

Saving in taxes helps to increase your investment returns and lower the impact of a market decline.

4. Reallocate Assets In A Tax-Efficient Way

Another way to potentially maximize tax benefits is to reallocate or change where your investments are held. Different funds and accounts are taxed in different ways, which we will touch on a little more in the next point. Your advisor will be able to guide you through this strategy of what makes the most sense for you depending on your individual goals, retirement age, and risk tolerance.

5. Consider Converting IRAs To Roth IRAs

A traditional IRA compared to a Roth IRA is a great example of accounts that are taxed differently. When you put money into a traditional IRA, your contributions are tax-deductible. You are taxed whenever you choose to withdraw that money. For a Roth IRA, all your contributions are made with money you have already been taxed on so your money grows tax-free.[2]

Talk to your advisor about converting any depleted assets in your traditional IRA to a Roth IRA in order for that money to grow tax-free. Since you normally have to pay the taxes on the earnings of a traditional IRA when you convert to a Roth, if your investment has gone down, then you will pay minimal or no tax at all to make the conversion. When or if the market recovers the growth of the investment will be tax free, which could save a significant of money in the future.

When considering this option you will need to consider your overall tax rate to determine if this makes sense.

6. Take Advantage Of Other Opportunities

A few other opportunities you could take advantage of with lower interest rates and stock prices are the following:

  • Consider refinancing your home.
  • Purchase future travel at a discount. Maybe just hold off on that trip to Europe for now!
  • Fund a 529 for your child's college with low market prices.
  • Refinance any outstanding debt.
  • Buy a home at a discount if you are renting.
  • Get your financial house in order to be prepared for the next crisis.

Are You Ready To Take Control?

No matter what the markets do in the future, you do have the opportunity to make the best of any situation. These actions could maximize the potential of your situation instead of feeling like you need to resort to the worst-case scenario. We at Bay Point Wealth are here to answer any questions you have and help you make the best decisions for your future. To get in touch, schedule a call with one of our advisors, email us at info@baypointwealth.com or call 443-458-0944.

[1] https://www.investopedia.com/terms/r/recognizedloss.asp

[2] https://www.irs.gov/retirement-plans/traditional-iras