When it comes to managing your long-term investment strategy through market volatility, the omnipresent advice of “stay the course” is as comforting as a steel wool blanket. Clients hate hearing it, and honestly most advisors are sick of saying it. Even if the old adage remains mostly true, when “staying the course” is where the conversation ends with your financial advisor—you should probably be looking for a new one.
Conversations You Should Be Having with Your Financial Advisor
A large downturn in the market causes lots of anxiety for investors, but it also creates a multitude of financial planning opportunities that warrant further discussion. Here are a few strategies your advisor should be talking with you about right now:
Given the current tax reprieve that is due to sunset in 2025, Roth conversions were an attractive strategy before the downturn—the opportunity has simply been amplified. If you convert an asset that has lost 20% to30% of its value, you can save a significant amount in taxes once the asset recovers.
Accelerating Your Account Contributions
If you’re still working, you should consider accelerating your yearly contributions to several retirement-savings or investment accounts while the market is down. Start by taking an inventory of your accounts and familiarize yourself with their respective yearly limits and flexibility of investments. Look for defined contribution plans, such as a 401(k) or 403(b), Individual or Roth IRAs, and Health Savings Accounts (HSAs) to identify the best opportunities for increased savings and investment options.
Tax-Loss Harvesting & Rebalancing
The longest bull market in history—recently deceased thanks to the current market volatility—created a lot of wealth for many Americans. But it also created significant tax consequences for investors who did not have any tax-losses to carry forward. These individuals found themselves faced with unwanted and, in some cases, unnecessary tax bills. Capturing tax losses today can help offset gains in the future and reduce tax liability for up to $3,000 in non-investment income.
Furthermore, your advisor should be proactively rebalancing your portfolio in turbulent times. This is to assure that your target asset allocation is maintained over the long run. When equity or bond markets have significant swings it can throw your allocation out of whack, and if you don’t have a rebalancing plan in place it can erode the value of your account over time.
So, are you staying on the right course?
If you and your financial advisor have been having conversations about most or all of the strategies in this article, then the answer is likely “yes.” But if you’re not talking about these topics with your advisor, or at all, then it’s time to start. Managing your wealth once it reaches a certain level is complex, time consuming, and carries a significant amount of personal risk. By employing Wealth Enhancement Group to take over these responsibilities, you’re relieving yourself of the time commitment and liability involved. We offer world-class investment management and planning acumen, and are committed to offering a high-touch relationship with our clients.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.