#1 – Rebalance your equities. Look at your stocks or stock funds. Are there stocks whose prices have dropped further than others? Are their companies which are very likely to get back to normal after this crisis subsides? Market selloffs, like the one we are currently in, can be unbiased. It’s a going out of business sale and everything must go! Review your portfolio and take advantage of good companies that are at closeout prices. It’s a smart time to invest. All investments can lose money, there are professional services available to help assess risk.
#2 – Sell bonds and buy stocks. If you have enough cash set aside and don’t need funds from your portfolio for the foreseeable future, it’s a good time to consider selling a portion of your bonds and buying stocks which can be purchased individually or as funds (Mutual Funds and ETFs). Take advantage of the huge spread resulting from how much stocks have dropped in comparison to bonds. How much you shift from bonds to stocks depends on your risk preference and time horizon.
#3 – Use cash to buy low-priced investments. If you have lots of cash and you don’t expect to need the cash for at least the next 12 to 18-months, use it to buy investments on discount. When the market volatility gets this extreme, almost all categories of investments experience major price swings. Channel your inner Warren Buffet and buy while the price is low. What you should buy depends on you risk preference, investing acumen, and the professionals you have in place to help you.
#4 – Consider a ROTH conversion. Any money being withdrawn from an IRA is taxed as income. ROTH withdrawals are income tax free. The goal is to get as much IRA money into your ROTH as possible. What better time to convert IRA money to ROTH money than when the values of your stocks are over 20% down? You pay income taxes on 20% less and when the market recovers, all of the growth is income tax free. ROTH conversions and their tax-free nature are subject to IRS rules. There are income taxes due when you convert an IRA to ROTH. Whether you should convert funds from an IRA to a ROTH is dependent on your unique tax situation.
#5 – Execute an asset location strategy. Locate your most aggressive growth-oriented investments in the most tax advantaged accounts. Get as much growth as you can tax-free (ROTH) or as capital gains (Individual or Joint Account). Leave the slower growth investments in your IRA. This strategy may depend on your personal income tax situation and your projected spending needs.
S.E.E.D. Planning Group LLC (S.E.E.D.)is a Registered Investment Advisor (RIA) with the Securities Exchange Commission. S.E.E.D.’s team provides investment fiduciary and fee-only financial planning services to clients. Our fees are disclosed, easy to understand, and not predicated on product sales.
Travis Maus is the managing partner and a wealth manager at S.E.E.D. Planning Group, LLC. He earned the Accredited Investment Fiduciary Analyst® (AIFA®) designation from the Center for Fiduciary Studies®, the standards-setting body for Fi360. The AIFA designation signifies the ability to perform fiduciary assessments measuring how well investment fiduciaries are fulfilling their duties to a defined standard of Care. As a wealth manager, he is also a member of the firm’s Financial Planning team where he provides coordinated and strategic financial planning and investment services to families and small businesses.