Four Steps You Can Take During Market Volatility

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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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

 

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