As we’re in the midst of the COVID-19 health and financial crisis, you have probably been watching the stock market decline and worrying, “What does this mean for me?”
If you are one of those investors feeling concerned about the state of their finances, hear this: the market’s uncertainty will never change—but your approach can. A well-informed strategy allows you to approach your finances with a level head.
We also know that you’re probably feeling some information overload. Between the daily ups and downs of the market, the evolving situation with COVID-19, and the recent passage of the CARES Act, there’s a lot to take in. So, we’ve laid out a few key tips to approaching the market’s downturn. And remember: your financial advisor can help guide you through integrating these tips into your investment strategy.
How to Approach a Downturn in the Market
1. Stay calm.
“The stock market is designed to transfer money from the active to the patient,” says famed investor Warren Buffett.
Patience is a virtue, especially when it comes to investing in the stock market. Successful investors are prepared for their investments to take a hit. Though a dramatic decline feels more extreme than “taking a hit,” try to stay calm in the face of distress. Your level-headed decisions will serve you well in the future.
Leaning on your investment strategy and the guidance of your financial advisor will help you feel empowered and steady until your investments bounce back.
2. Invest in spite of the downturn.
However unfortunate, volatile markets are inevitable. A down market may pose an excellent opportunity for investors hoping to benefit from the downturn in anticipation of the market recovering. Historically speaking, severe drops in the stock market are the best time to pick up investments at prices that are at an all-time low. To quote Warren Buffett again:“Get greedy when people are fearful, and fearful when people are greedy.”
3. Consider refinancing your home loan to benefit from lower interest rates.
As interest rates dip, it’s an opportune time to consider refinancing your mortgage. Refinancing is not for everyone, though. The process will cost you in upfront fees, so consider whether the cost outweighs the benefit.
If you are exploring the possibility of a refinance, check first with your current lender. Ideally, they will work hard to keep your business if they know you’re shopping for a new loan. Checking with your current lender could get you a lower rate while shortening the refinance process, as they already have your current information.
4. Consider converting your IRA into a Roth IRA.
No matter your age, converting your IRA into a Roth IRA is a strategy worth exploring during a market downturn. This move would allow your earnings to grow tax-free but will require you to pay taxes on the money upfront. The taxes you will pay upfront, however, will be much lower when your balance is down due to a fall in the market. Under the right circumstances, this strategy can set you up for success in anticipation of a stock market bounce back.
5. Rebalance your retirement account.
Assess your retirement account to identify a possible imbalance in investments. Your account may have been diversified adequately between stocks and bonds at one time; however, with the market change, it is likely that the balance no longer makes sense in the current climate. Your financial advisor can help you rebalance your retirement account to get you back on track to reach your savings’ full potential.
6. Know that there are no required minimum distributions from your IRA in 2020.
Thanks to the CARES Act, many will benefit from not taking their required minimum distribution (RMD) for 2020. Normally, the age when RMDs are mandatory is 72, with the exception of those who turned 70.5 in 2019. The CARES Act allows account owners to forego their 2020 RMD, as well as last year’s if 2019 was their first year and they had not yet taken that distribution. This exception is intended to give the account time to bounce back from the market’s decline before RMDs resume.
7. Evaluate how the tax deadline extension affects you.
The federal government has extended the tax deadline to July 15, 2020. Does that mean you should wait to file or to pay your taxes? The answer to that question depends heavily on whether you expect to receive a refund. If so, you may want to take advantage of having the extra cash. If you think you will owe taxes, you might instead consider waiting to file closer to the deadline or file an extension. Consult your tax preparer for guidance.
8. Understand the downturn’s impact on your student loan payments.
The Senate passed a $2 trillion stimulus package on March 25, 2020, that will alleviate pressure on student loan borrowers. All payments and interest will be suspended until September 30, 2020.
9. Take notes.
During a low period in the market, you have a front-row seat to the effects it has on the economy. Take this opportunity to observe how other investors are reacting and how the market is responding. When doing your research, you can identify investment possibilities and take notes for the market’s next inevitable downturn.
Create a Long-Term Investment Plan
You can invest confidently when backed by the guidance of your financial advisor. They aren’t psychics, and they can’t tell you what exactly will happen with your investments; however, they’ve done the research so that you don’t have to. Advisors spend their time watching market trends, learning about how those trends affect clients’ portfolios. They’ve put in the time and can help you make well-informed decisions when you’re ready to invest.
At SageSpring Wealth Partners, our advisors create well-balanced plans so that you can feel confident in your financial plan. We teach and empower you to make sound investment decisions, allowing you to invest with confidence.
Contact us to discuss your strongest financial future and how investing can take you there.
