3 Tips for the “Unnerved” During Market Downturns
The words “unnerving” and “scary” have been uttered by individuals when describing how they feel about the current volatility in their portfolios. Inflation, supply chain challenges, rising interest rates, and geopolitical tension have made for a recipe of concern. Although the issues are different this time, we need to continue to take a disciplined approach to managing and growing wealth. Below are three reminders to help you during market downturns:
1. Don’t Panic – History is on Your Side
The trembles in your stomach due to the decline in your investment assets might be warranted. According to Dow Jones Market Data, the first 100 days of 2022 were the fourth worst return in the history of the S&P 500 index. The index was down 16.5% on May 25th, and we had not seen an open to a year this bad since 1970 when the S&P 500 opened the year down over 23%. With that being said, it is important to look back at history to remind us that the market is resilient and will recover and grow. On average, in years when the S&P 500 has declined over 10% in the first 100 trading days, the remainder of the year is up 9.2%.
2. Volatility is Your Friend
Having the confidence that the market will recover just as it always has allows us to take advantage of market declines. Here are four financial planning considerations to take advantage of the current downturn in your portfolio:
- Tax Loss Harvesting – now is a good time to sell your losers and realize tax losses. These losses can be very valuable when you go to sell appreciated assets (such as your Agency) in the future.
- Rebalance Your Portfolio – when items go on sale at the store, we rush to make a purchase. Similarly, the market has discounted many companies, and it is an attractive time to buy stocks. Now is the time to rebalance your portfolio to buy low, and you can sell high once the market recovers.
- Roth Conversions – if your tax situation warrants Roth conversions, now is a great time to convert as you will get tax-free growth when the market recovers.
- Family Gifting – If you have a taxable estate, consider gifting assets out of your estate. Today’s depressed values will allow for small gifts to appreciate into larger gifts on the market rebound. Assets will then grow outside your estate, saving your family future estate tax.
3. Stick to the Plan
Turn off the noise – sometimes called news. Yes, the market is not performing well year-to-date, but that should not derail your long-term goals. Focus on what you can control and have confidence that your portfolio will recover and grow. Hit your savings goals and continue to invest for the long-term. You will be rewarded for taking a disciplined long-term approach to growing your wealth.
Jim leads the Commercial Insurance Professionals Practice Group. He uses his understanding of the insurance industry to help insurance professionals maximize their prime earning years, develop a discipline around saving those earnings and put a plan in place to best utilize assets. Jim's focus on creating financial blueprints for his clients has earned him recognition as a “Five Star Wealth Manager” by Chicago Magazine.