By Brandon Miller, CFP–
Gas prices hitting records highs. Extreme drought and the threat of another devastating wildfire season. Supply chain shortages we thought would be solved by now. An unjust war in Ukraine. Political divisions deepening and turning violent. And yet another Covid variant streaking around the globe.
No wonder we’re all feeling a little stressed these days. And it is not surprising that financial markets are as spiky as the EKG of a person in A-fib. So, what can you do to fight the money worries that inevitably creep in at times like these?
If you read my article a few months ago, you know that asset allocation is your best defense against market volatility. Fear and greed drive market movements, so a well-diversified portfolio helps you capitalize on whichever emotion is prevailing at any given moment.
However, determining the right mix of investments for your situation is a bit like brushing your teeth—you have to do it regularly for it to be effective. Your circumstances are always changing. At any given moment, you’ll have more or less money to invest, the time horizon for needing your money gets shorter every day, and as stated above, things are always taking place that impact your financial situation. So, regular rebalancing of your portfolio is important to keep your asset allocation in line with your current self.
Rebalancing doesn’t have to mean starting over, just putting things back the way they were. Let’s say, for example, that you’ve determined that having 10% of your portfolio in tech stocks is a good allocation. When tech soars and those stocks rise, they can become a disproportionate part of your investment mix. A bull run that leaves you with 17% in tech knocks your asset allocation out of whack with your plan. This is not the time to get greedy and try to ride a tech wave. (Just think how quickly Netflix rose and dove if you need a cautionary tale.) You’ll likely fare better sticking to your plan and selling off some of those stocks to bring your tech allocation back to 10%. Of course, the reverse could also happen where your percentage dips below double figures, and you need to invest in more tech to rebalance.
Aside from a need to rebalance, volatile markets open up opportunities for savvy investors. One of my favorites is Roth conversions. If you need a refresher, a Roth account is a retirement vehicle that makes you pay taxes upfront on the amount you contribute or rollover. Regular IRAs and retirement accounts defer those taxes until you withdraw the money. A major advantage of a Roth is that your money grows inside the account tax-free—as in, you don’t owe another dime on this money once you pay your upfront tax bill.
So, why do Roth and uncertain markets make a lovely pair? Let’s say you had $100k in an IRA that you wanted to convert to a Roth account, but before you got around to it, the balance dropped to $70k. You can view that as a loss or that your taxable amount just shrank $30k. Pay Uncle Sam his due and if your investments swell back to the original balance—or more—you saved a nice stash of cash and put yourself closer to your financial goals.
Tax-loss harvesting also works well in volatile markets. This strategy has you selling investments that have lost value to offset the gains you’re making on other investments. Or, if you have no gains, you can use your losses to offset up to $3,000 of your income each year (on a single or joint tax return). Either way, it can help lower your tax bill.
And if you’re still contributing to your portfolio and not yet living off your assets, keep investing regularly. Down markets can mean you’re buying stocks on sale, and who doesn’t love a sale?
Worrying about financial markets that are beyond your control does you no good. Instead, I suggest figuring out where you can seize opportunities and turn losses into gains. Or hire a financial professional to do that for you. But don’t let money cause so much stress that your heart spikes with every market fluctuation.
If you’re interested in market influences, my firm is offering a virtual seminar about Politics and Markets on July 22. Contact us at for details at hello@briofg.com
Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
Published on June 9, 2022
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