Choosing the Right Course During Market Volatility

CHOOSING THE RIGHT COURSE

DURING MARKET VOLATILITY

ADAM PAULSON

Senior Vice President, Financial Advisor Partner Programs

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, if “stay the course” is where the conversation ends with your financial advisor, you should probably start 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 about with you right now:

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2 ROTH CONVERSIONS

Given the current tax reprieve that is due to sunset in 2025, Roth conversions were an attractive strategy before the downturn. Now, the opportunity has been amplified. If you convert an asset that has lost 20 - 30% of its value, you can save a significant amount in taxes once the asset recovers.

ACCELERATE YOUR ACCOUNT CONTRIBUTIONS

If you’re still working, you should consider accelerating your yearly contributions to several retirementsavings 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.

HSAs are a particularly beneficial, and misunderstood,

investment vehicle. They have triple tax advantage: Adding money from your paycheck reduces your tax liability, you don’t incur taxes while that money grows, and there are no taxes for withdrawing funds for qualified medical expenses. And, unlike a Flexible Spending Account (FSA), an HSA is not a “use it or lose it” benefit.

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4 TAX-LOSS HARVESTING

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.

PORTFOLIO REBALANCING

In turbulent times, your advisor should be proactively rebalancing your portfolio by selling off assets that went up to buy assets that went down. This ensures 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 provide world-class investment management and planning acumen and are committed to offering a high-touch relationship with our clients.