The recent market volatility has some investors (maybe even you) a bit nervous. While watching the day-to-day market movement can be painful, market downturns provide excellent opportunities for smart investors. So, rather than worry about what will happen to the market tomorrow, here are some investment strategies to consider implementing today.
- Shop at a discount: Market downturns provide an excellent opportunity to buy more, for less! The market is essentially on sale, so take advantage of it. Unfortunately, the stock market tends to be the only store people shy away from when prices drop. Consider making your annual IRA contributions if you haven’t already or putting extra cash that you have into the market. (Remember, you can make 2021 IRA contributions until April 18, 2022). Now is a great time to put your money to work!
- Rebalance and capture tax losses: Your allocation is likely out of whack based on recent market movements that have hit both the equity and bond markets. This means that your portfolio probably does not align with the risk level you are comfortable with. Rebalancing will allow you to adjust your risk tolerance while also taking advantage of any tax losses you might have. Tax-loss harvesting is the process of selling investments that have dropped in value below their purchase price and creating realized capital loss on your tax returns. These capital losses can be used to offset taxable gains and reduce your tax bill.
- Convert IRA Money into Roth IRA Money: Money in a Roth IRA is incredibly valuable – it grows tax free, and it isn’t subjected to required minimum distributions. If you have an IRA, converting that money into a Roth IRA could be a worthwhile strategy to consider. Converting money from an IRA is a taxable event, so it is beneficial to convert when the market is trading at a discount. Just remember, only implement this strategy if you are confident you will have the extra cash available to cover the additional taxes owed.
Remember, economic slowdowns and market pullbacks are normal and to be expected – it is all part of the business cycle. However, being proactive and making smart money moves, like the ones listed above, can improve returns, and help you achieve your financial goals.