Jul 13, 2023
3 Tips for the “Unnerved” During Market Downturns
The word “unnerving” has been used by some to describe the current market environment. Inflation, supply chain challenges, rising interest rates and geopolitical tension have created a recipe for concern. But while the issues of the day can change, we believe the fundamentals of investing and financial planning stay the same. Here are three reminders to help you.
1. In volatile markets, we believe history is on your side
The trembles in your stomach during recent declines in your investment assets might be warranted. According to Dow Jones market data, the first 100 days of 2022 were the fourth-worst returns in the history of the S&P 500 Index.1 The Index was down 16.5% on May 25, and we had not seen an open to a year that bad since 1970 when the S&P 500 started the year down more than 23%.2 That said, we believe it is important to look back at history to remind us that the market is resilient and, over extended periods of time, has demonstrated the tendency to recover and grow. On average, in years when the S&P 500 declined more than 10% in the first 100 trading days, the rest of the year was up 9.2%.3 While future performance cannot be promised based on historical returns, we believe it is prudent to keep this information in mind.
|Year||First 100 trading days (% change)||Rest of the year (%)|
2. Volatility can be your friend
Because we believe that the market will likely recover, this lets us take advantage of declines. Here are four financial planning strategies to consider when there is a downturn in your portfolio:
- Tax loss harvesting – If you have stocks that are down, you can sell them to realize tax losses. These losses can be valuable when you sell appreciated assets in the future.
- Rebalance your portfolio – When items go on sale at the store, many rush to make a purchase. Similarly, the market has discounted many companies. Rebalancing now could help you buy desirable shares “on sale” relative to their value.
- Roth conversions – If your tax situation warrants a Roth conversion, we believe now is a great time to convert, as you will earn tax-free growth should the market recover.
- Family gifting – If you have a taxable estate, consider gifting assets out of your estate. Today’s depressed values will allow for small gifts to appreciate into larger gifts upon any market rebound. Assets will then grow outside your estate, saving your family future estate tax.
3. From our experience, your financial plan is what matters most
Turn off the noise—whether it’s coming from the newspaper, TV or social media. In our view, the market will have its difficulties, but they should not distract you from your financial plan or derail your long-term goals. Focus on what you can control and have confidence that your portfolio can recover and grow. Hit your savings goals and continue to be a consistent investor. We believe you will be rewarded for taking a disciplined, long-term approach to growing your wealth.
ABOUT THE AUTHOR
Jim is a Partner, Wealth Advisor in our Itasca, IL, office. He uses his understanding of the insurance industry to help insurance professionals maximize their prime earning years, develop a discipline around saving those earnings and put a plan in place to best utilize assets. Jim’s focus on creating financial blueprints for his clients has earned him recognition as a “Five Star Wealth Manager” by Chicago magazine. Jim joined legacy firm BDF in 2004.
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
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