Most investors understand the stock market is having a difficult year. But some investors are less aware of the fact that 2022 is shaping as one of, if not the worst year on record for fixed income investments and balanced portfolios also. Traditional guidance would tell you to rebalance a portfolio when markets are down to sell highly appreciated investments and buy other investments that may be priced at a discount.
Yet in today’s environment, when both stocks and bonds have dropped, what are some other smart financial considerations given the market conditions?
Consider A Roth Conversion
A Roth Conversion is when you have money in a pre-tax retirement account and are willing to pay income tax now to move some or all those funds into a post-tax retirement account (otherwise known as Roth). This allows investors to pay taxes on a discounted value while simultaneously moving those funds into your Roth retirement account and the opportunity for tax free growth (instead of tax deferred growth) moving forward.
If You Own Your Home, Consider a Home Equity Line of Credit
The best time to ask for money from a bank is when you don’t need it! A home equity line of credit (“HELoC”) can be a source of cash available to you. You can choose to use some or all of your line and you are charged interest based only on the amount that you have actually borrowed from the line. It is important a HELoC doesn’t become an easy source of capital for overspending, but used appropriately, a HELoC can benefit you. As an example, a couple is utilizing $1,000/mo from their $300,000 investment portfolio (4% withdrawal rate) to support their lifestyle. To avoid selling assets while their portfolio is down, our couple utilizes their HELoC instead of their investment portfolio for the next year to let their investments stabilize. Once the portfolio is growing again, the couple starts their $1,000/mo withdrawal and pays back the funds used from the line with the higher investment balance.
Take A Moment to Re-Evaluate Your Risk Tolerance
Bear markets can be emotionally overwhelming for investors. Some investors see this as an opportunity to take advantage of depressed prices, while others stay up at night worried about how much lower the market and potentially their portfolio may go. To be clear, neither emotion is wrong; they are different responses to a highly emotional situation. But if you are in the latter and have serious concern about your nest egg, take note of this. Now is very likely not the time to take any action, but when markets recover, it will be valuable to your well being to recognize your risk tolerance is lower than your current portfolio volatility and a making the appropriate adjustments may be necessary.
Call Your Advisor!
Many times, our clients will call and ask incredibly valuable questions amid a market drop. A great question like “How does the current market volatility affect my retirement goals?” can reinforce the value of the plan you and your advisor have worked hard to establish, but also provide reassurance that your plan is still on track and market conditions are within the planning framework.
As always, your advisor at iNNOVA Wealth Partners is here to answer any questions you may have or review smart financial decisions to consider in the current environment.
INNOVA is a SEC registered investment adviser. Information presented is for educational purposes only intended for a broad audience. INNOVA is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.