Published by Taylor Financial Group
Are the recent ups and downs of the stock market making you nervous or worried? While the market lost 5.2% two weeks ago and then was back up again 4.4% last week, it’s important to note that there are opportunities despite the volatility. As long as you have enough cash on hand for your immediate needs, there are four actions you may want to take during these times of market downturns:
- Consider Funding Your Individual Retirement Account (IRA). Take advantage of lower stock market prices and invest for the long-term. Due to the downturn in prices, you may even want to become more aggressive in your investment choices. In 2018, you can invest up to $5,500 in an IRA and an additional $1,000 if you are age 50 or older as long as you have earned income.
- Consider this a Buying Opportunity for Your Existing Accounts. If you have cash in your portfolio or will be receiving a bonus, consider purchasing additional shares while prices are low. There are a number of ways to do this. You can push money in when the market “corrects” or you can employ the tried and true method of dollar cost averaging. Dollar cost averaging allows you to purchase more shares when prices are low and fewer shares when prices are high. As share prices decline, you will be able to purchase more shares. The advantage with dollar cost averaging is that you don’t need to be concerned about investing at the top of the market or determining when to get in or out of the market.
- Now May Be the Time to Do a Roth Conversion. Converting your Traditional IRA to a Roth IRA is never an easy decision to make given that a conversion is a taxable event and is now irreversible. But doing a conversion during a down market makes the change a little easier to handle. For example, if your traditional IRA is worth $100,000 as of December 31, 2017, but now has a value of $90,000, your tax bill would be slightly lower if you made the conversion today.
- Helping Your Dependents. There may be a buying opportunity in a down market, so why not contribute more money to a 529 plan or open a Roth IRA for your children (the latter requires earned income.)
It’s also important to note that you should not panic during these times. Instead, you should stick to your original financial plan. Your plan should include regular re-balancing of your assets, diversification, and an annual assessment of your risk tolerance. If you have any questions about your portfolio or what you can do during volatile times, please give us a call.
Sources:
CNBC, The Stock Market is Dropping – Here’s What You Should Do, February 1018.
Forbes, Don’t Panic: 3 Things Investorss Should Do During a Correction, February 2018.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Because dollar cost averaging involves continuous investment in securities regardless of fluctuating prices, the investor should consider his or her financial ability to continue purchases through periods of falling prices, when the value of their investments may be declining. Dollar cost averaging does not ensure a profit.
Limitations and Early Withdrawals: Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.
Retirement Plans: Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.
Roth IRA: Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan.
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