Market Correction Checklist

It’s official. If you haven’t heard already the S&P 500 officially closed last Monday in Bear Market territory. Bear markets are typically defined as a decline of at least 20% from a recent high. Stocks have been falling AND bonds have been falling AND meanwhile prices are rising and things feel bad. It is easy to think that things may get worse (and they very well could) and you want to do something about it. This is a perfectly normal reaction. When faced with something painful, we look for ways to ease the pain. While such a response serves us well in many areas of life, investing is not one of them. Why? Because historically, markets have demonstrated that the best time to buy (or sell) is when the opposite action would feel most comforting. As John Bogle (Founder of Vanguard) once said: “don’t do something, just stand there!” Given the risk of a timing error, the hurdle for any action you take during periods of high volatility should be VERY high. That means having a strong, evidence-based rationale for any investment change you make. If you can’t clearly explain your process or edge in making a buy or sell decision, then there’s likely no justification for doing it. That’s especially true when you’re under duress, with fear clouding your thinking. A downturn in the market causes lots of anxiety for investors, but it also creates financial planning opportunities. If you are feeling like you want to do something, try to do something productive. Here’s a checklist of things to consider:

1. Roth Conversions 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% to 30% of its value, you can save a significant amount in taxes once the asset recovers.

2. 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.

3. 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. We are proactively rebalancing & doing tax-loss harvesting in your portfolio where it makes sense during these turbulent times. This is to assure that your target asset allocation is maintained and to capture tax losses that can help us in the future.