Wall Street can be a wild ride sometimes, can’t it? For investors, volatility and unpredictability can be scary, especially if you’re facing a down market. If you have a significant amount of assets invested, a downturn can feel like a serious threat to your financial stability. And while the market typically rebounds in time, that doesn’t make a decline any less stressful at the moment. It can be tempting to take your money and run, choosing to stay on the sidelines for a while, but don’t let your emotions get the best of you. Instead, consider these six smart money moves to make in a down market.
How to Invest in a Down Market: The Best Way to Beat a Bear Market
1. Increasing Your Investments
Now, it may seem counterintuitive to put more money into a market when it’s on the decline, but it could improve your long-term prospects. This move is especially wise for young investors who have time to wait out the market turbulence. Investors who buy in when the market is down will be able to take full advantage of the rebound that will inevitably come down the line. This move makes even more sense if you’re able to score a matching contribution from your employer since you’ll be able to double your chances for growth.
2. Rebalancing Your Portfolio
Regardless of where you are in your investing journey, a down market is a great time to sit down and rebalance your portfolio. Young investors, you may want to use this chance to invest more heavily in the markets. Whereas for older investors, this may be the time to begin transferring more assets into lower-risk investments such as bonds and CDs. For both groups, it’s always smart to keep your portfolio balanced by diversifying your investments and properly mitigating your risk.
3. Converting IRAs
Transferring money from a traditional IRA to a Roth IRA is a smart tax-saving strategy on its face. However, when you transfer funds over, you’re required to pay taxes on those investments. Consider, though, that a decline in the market means the value of your investments will be lower. So, if you make the transition from a traditional taxable IRA to a tax-free Roth IRA during a market downturn, you’ll ultimately be paying a smaller amount of taxes on the conversion due to the lowering in value of your investments.
If you’ve been planning on gifting any of your assets to loved ones or a charity, a market downturn may be the perfect time to do so – especially if you believe the stocks will appreciate in the future. Since the assets have lower values, you’ll be able to avoid paying more in taxes as well as maximize the amount of money you’re giving away.
5. Tax Loss Harvesting
Tax-loss harvesting is a strategy that investors can use to help offset capital gains with capital losses, consequently lowering their tax bill and better positioning their portfolios for the future. Basically, you’re selling investments at a loss for a tax write-off. This is an especially smart move for investors who are interested in reducing their tax burden for the year.
6. Check-in With Yourself
A market correction is a perfect opportunity for investors to slow down, check-in with themselves, and re-assess their goals. Depending on your circumstances, your long-term goals for your portfolio, and your time horizon (i.e., how close you are to retirement), now may be the time to update your investment strategy and make some changes.
Smart Investors Take Advantage of a Down Market
Whether hot or cold, the market always provides opportunities for investors to make money – that’s why it carries such a large appeal. Ideally, the market would always be up, but that’s simply not realistic. So, it’s important that you have a strategy in place for when the market takes a tumble – and that you don’t let your emotions get in the way of your investment strategy.
At Davidson Capital Management, our team works to create an investment strategy that is unique to each client’s needs, goals, risk tolerance, and time horizon. Whether you’re an individual, run a foundation, or own a small business, our investing solutions will provide you with the confidence to plan your future. If you’d like to talk with one of our professionals about your investment strategy, give us a call today.