Actions to Take During Down Markets
As financial markets continue their slide lower to start the year, the environment creates a great opportunity to consider the following actions:
- Roth Conversion – Converting pre-tax accounts like your IRA to a Roth IRA during periods of market decline can potentially save you money in taxes – because you pay taxes on the entire conversion amount, converting when your accounts values are lower can save you in taxes paid and then allows your Roth dollars to grow tax-free as the market rebound.
- Add money to your portfolio – Whether it’s a lump sum or increasing your periodic contributions, the more funds you can add when market prices are low, the more your portfolio benefits as markets rebound – buying in at low prices isn’t always an option so take advantage while you can.
- Rebalance into a more aggressive portfolio – it can be tempting to take risk off the table during market downturns, but research suggests those that can tolerate extra risk may benefit long-term from turning more aggressive during market stress periods – this should only be done if you can tolerate the extra near-term volatility, but the reward may be a larger nest egg in the long run.
If you have questions or want to discuss any of the above actions and their pros and cons, don’t hesitate to contact us.