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Rising tensions between Russia and Ukraine sent stock markets down again on Wednesday.
Many individual investors are personally feeling the recent market downturn posed by geopolitical risks, especially when it comes to their retirement account balances.
Financial advisors say this can be an opportunity to work towards your long-term goals instead of actually letting any cash available to you sit on the sidelines.
The S&P 500 index fell into correction territory on Wednesday, while the Dow Jones Industrial Average and Nasdaq Composite Index also suffered losses.
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For many investors, the contraction in equity markets at the start of the year may feel unfamiliar after the muted volatility we have, said Vance Barse, wealth strategist and founder of Your Dedicated Fiduciary, with offices in San Diego and Prosper, Texas. . ,
Barse said he is urging clients to take a proactive approach to see how they can take advantage of the current market conditions.
“With volatility usually comes opportunity, and we are advising clients to take action,” Barse said.
‘Now is a good time to invest’
On Tuesday, Barse advised a client who has yet to fund her 2021 Simplified Employee Pension Individual Retirement Account (SEP IRA) contribution. SEP IRAs are tax-deferred retirement savings accounts for small businesses and self-employed workers.
Retirement savers have until April 15 this year to fund their IRAs for the previous year.
Barse said now is also a good time to make the jump to 2022 retirement contributions, including IRAs as well as 401(k) accounts.
“If you see continued volatility, and stocks and/or bonds continue to sell, we may have an opportunity to deploy that cash into a portfolio where valuations may be lower than where it is now,” Barse said.
Barse’s clients mainly include retirees, C-suite executives and real estate owners.
But the strategy also works for investors who are just starting out.
Certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said her 25-year-old daughter had fully funded her Roth IRA account over the weekend.
The geopolitical turmoil served as a learning opportunity for his daughter, a gig economy worker who is experiencing the first recession of her professional career.
While her early retirement investment had risen about 38% two years ago, she was disappointed to see it in the red now.
“The best thing for you is not to panic,” Cheng said as he told his daughter. Cheng also said that if one is in a good position, now is a good time to invest.
tax saving opportunities
Investors may also want to consider Roth conversions, Barse said, which involves moving retirement assets from a traditional IRA or other pre-tax retirement account to a post-tax Roth IRA. The transfer will now create a tax liability, which can be reduced in a down market.
By doing a Roth conversion now, he may even free up cash to deploy to that account in the near future, Barse said. If the market continues to be volatile, this could present an opportunity to deploy cash at a lower valuation.
For non-retirement portfolios, now may be a good time to take advantage of tax-loss harvesting strategies that weren’t available in late 2021 when stocks were high, Barse said.
Tax-loss harvesting enables investors to sell investments at a loss and replace them with other securities. This can help reduce taxes paid on investment gains or other taxable income. Importantly, investors must refrain from purchasing the same or similar securities within 30 days before or after the sale, so as not to violate IRS wash sale rules and trigger penalties.
To be sure, it is best to enlist the help of a tax professional or financial advisor to verify and properly execute strategy actions specific to you.
keep balance
Market volatility presents an opportunity to reevaluate your overall position and whether your investments are working for you, said Diehan Lassus, CFP and Managing Principal at Peepack Private Wealth Management in New Providence, New Jersey.
Now is a good time to ask yourself whether your investments are well positioned for the long term and are they acting like you would expect them to amid the current volatility, she said.
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“There’s still an opportunity to continue to rebalance and make sure you pay attention to what’s happening with your investments,” Lassus said.
Some 401(k) plans may offer automatic rebalancing features, which can help ensure your portfolio doesn’t go too wrong, Cheng said. Choosing may incur fees, but it can give you peace of mind that your portfolio is getting rebalanced every quarter or once every year, for example.
“Ask if it’s available, because that can be helpful too,” Cheng said.
