7 Tips to Help Your Investment Portfolio Stay on Track During a Downturn
When the economic climate takes a turn for the worse, it can be nerve-wracking for investors. But fear not—there are smart money moves to make in a down market. If you have significant assets in play, market declines can put your hard-earned wealth at risk, yet they also present a unique and interesting opportunity for those who are well informed. Markets usually recover, and while jumping ship at the lowest point may help quell your nervousness, it can also mean your wallet could end up leaner than you’d like. So, read on for the tips you can use to prosper even when the market is not.
1. Boost Retirement Contributions
Boosting your retirement contributions, especially if you have a matching contribution from your employer, is a great idea no matter the market circumstances. But it can be a particularly good idea to up your retirement savings when the market is down, especially for younger investors with longer time horizons. That way, when the market does recover, your investments can flourish.
2. Take Stock of Your Stocks
One advantageous money move to make in a down market is rebalancing your portfolio. If you’ve been relying on a certain investment mix to work for you in a thriving market, switching things up could help you stay ahead. If you’re close to retirement, consider transferring more of your assets to more stable investments like CDs and bonds. If you’re just starting out with investing, you should look at strategically investing in the stock market.
Wherever you are in your investment journey, it’s always a good idea to reexamine your portfolio to make sure you have a healthy mix. Diversifying your investments is one of the best ways to reduce your risk.
3. Maximizing Tax Losses
Tax-loss harvesting can help when the market isn’t going the way you hoped, but only if you’ve experienced an investment loss. The next step: writing off those losses on your tax return. It’s a solid strategy to consider in order to reduce your tax burden when the economy isn’t cooperating. It’s important to note that you can buy back your investments after selling them, but you have to wait at least 31 days to avoid violating federal regulations.
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4. Consider Roth Conversions
When you’re experiencing market growth and your investments are at top value, converting from a traditional taxable IRA to a tax-free Roth IRA means you’re likely on the hook for a significant amount of taxes. During a decline in the market, however, that’s not the case. You can save some significant money during a Roth conversion because the value of your investments isn’t as high, meaning you will pay much less in taxes. It’s even more advantageous if your income is also lower than it normally would be.
5. Give and You Shall Receive
If gifting assets to your friends or family members is something you’ve considered, you may want to think about making that move during a market downturn when assets are valued lower than usual. The one catch: you have to be fairly confident that the assets will appreciate when market health returns. Being strategic when considering giving assets away can be a very good way to ensure your loved ones can make the most of your gift.
6. Make Money Work for You
If looking at your portfolio is making you more stressed than satisfied, it’s probably time to shift your attention to something you can control: your goals. It’s one of the best money moves to make in a down market. Depending on your situation, it might be smart to take a look at your investment portfolio’s goals, timeframe, and objectives. Take a look at whether or not your documentation is up to date, and update what you need to.
If you have a big expense coming up or a big milestone like retirement, you may be thinking about how your investments can be maximized in the short term. That makes it all the more important to track your goals and reassess your investments to ensure you stay on track.
SEE ALSO: Portfolio Change to Balance Market Opportunities and Risks
7. Embrace the Inevitable
Market downturns are inevitable, but you have control over both your strategy and your mindset. When you’re investing, it’s easy to get discouraged by an unexpected swing, but it’s important to remember that history shows us that your investments will likely still be successful and grow steadily over time.
Are You Making the Right Money Moves in a Down Market?
Just like you should be on the lookout for good investments when the market is performing well, you should also be ready to embrace the downturns when they come. By being prepared, you may just find that you can take advantage of a great opportunity.
At Wade Financial Advisory, our experienced team of professionals is ready to help you build a portfolio that is designed to achieve your goals while moderating risk – regardless of current market conditions. If you’re interested in learning more about our investment management services, please reach out to us today.