If you’re a younger investor looking at the current market volatility, you might be alarmed but you’re probably not panicking.
It might be a different story if you’re someone nearing retirement.
For most investors, the advice financial planners give is along the lines of “stay the course” or “keep your long-term horizon in mind.” This is all true and good advice – but what if your time horizon isn’t long, or you just want to take advantage of next-level techniques for using market swings to your advantage?
Here are three questions I’ve been answering for people over the last few months:
If I’m living off of my investments because I’m retired or just really wealthy (good for you!), do I need to review my cash position?
Having too much cash on hand can be counter-productive, especially in times of high inflation. However, if you can strategically hold enough cash to sustain you while the market is down, that can make the low return worth it.
When it comes to your investments, it’s best to try and “stay the course” and not move to cash. Remember that selling stocks while they are down guarantees that you won’t have an opportunity to recoup those losses.
What if I have a traditional (aka, pre-tax) 401(k) or IRA?
When valuations are low, it can be a good time to consider a Roth conversion of some or all of those assets. On that same note, if you are unemployed this year, a Roth conversion may make sense while you are in a lower tax bracket. This can be complicated, so be sure to check with a financial advisor.
What if I have some non-retirement assets with a tax loss?
If that’s the case, consider harvesting the loss, which could reduce your tax liability. “Tax Loss harvesting” is essentially selling off some of your holdings that have decreased in value and using that loss to offset investments that have increased in value. This can alter your asset allocation, so this is also a good time to check in with your advisor.
While these are common questions, I know that your financial situation is unique. Market volatility like we’ve experienced these last few months is a good reason why it’s important to talk to a trusted advisor. Getting your specific questions answered could make the difference between panicking and knowing you’re on the right track.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success of protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
