Financial planning opportunities in a volatile market

If you haven’t heard from your adviser, there may be a reason for that. When markets are volatile and economic uncertainty is high, engaged advisers don’t wait for their clients to call. Instead, they reach out to clients to offer ideas, not just reassurance. Financial planning is highly personal. So, while there’s no universal approach, there are a few distinct planning opportunities that you might want to consider.

Investment Actions—

Raise Cash: If you don’t have emergency savings, consider reallocating your portfolio to raise sufficient cash for 6-12 months’ worth of expenses. Maintaining an above-average level of cash reserves will provide you with a cushion to ride out rough patches and resources to invest when markets overreact to a perceived or real event. 

Reassess Risk Tolerance: When did you last discuss your risk tolerance with your adviser? If you made that assessment years ago, when retirement was a distant possibility or markets were booming, how do you feel now? Are you panicking, or do you see the down market as a buying opportunity? If your risk appetite has changed, consider updating your portfolio to reflect your tolerance. 

Rebalance Your Portfolio: If your portfolio has shifted recently, you and your financial adviser should reconsider its makeup. You might be overconcentrated in one stock (a common problem for those with company stock options or employee stock purchase plans) or overweight in one sector. Perhaps you want to explore international investment. High-net-worth investors may want to consider private markets, which offer the potential for strong returns, portfolio diversification, and reduced volatility.

Tax Planning Opportunities—  

Tax-Loss Harvesting: If some of your investments have lost value, the silver lining could be a lower tax bill. Tax-loss harvesting enables investors to sell unprofitable investments at a loss, offsetting taxes on capital gains and other income. One catch is that tax-loss harvesting only applies to taxable investments, so it’s not a helpful strategy for investments in tax-sheltered retirement accounts, such as a 401(k) or a traditional IRA. It must be done before the end of the calendar year. Additionally, tax-loss harvesting may not benefit those in lower tax brackets. 

Roth Conversions: A down market may offer the ideal conditions for a Roth conversion. With assets trading at lower levels, you can transfer assets from a regular IRA at a lower value (increasing the relative percentage of assets transferred) and potentially lower your tax burden at the same time. However, Roth conversions are not for everyone.

Gifting and Estate Planning—

Gifting Assets: Gifting shares of depreciated stock might make sense in a down market because you can give more of them. By gifting these assets now, you’re transferring more potential future appreciation. Of course, you’re also gifting the tax basis, which might be desirable if the recipient is in a lower tax bracket.  

Funding Trusts: At lower values, estate planning techniques might be more attractive now. Donating depreciated shares to a trust, may shift future appreciation.

Financial Planning Updates—

The current market volatility and economic uncertainty can be an informative, albeit uncomfortable, stress test for your financial plan. Now is an excellent time for you and your adviser to re-run long-term cash flow sufficiency scenarios and model how your plan will hold up if market conditions change substantially. You might be pleasantly surprised that present-day turbulence will unlikely steer you off course. However, if you need to recalibrate, a knowledgeable adviser can help. 

Depending on how we think conditions are trending, we might want to make some tactical asset allocation adjustments to your portfolio, whether to make it more resistant to perceived and actual threats or opportunistic to take advantage of emerging opportunities.  

In a down market as well as a booming one, the best plan is to have the right people, systems, structures, and technologies serving your interests. Please contact us today to learn more. GreatDane Investment advisers would be honored to put their capabilities to work for you.