5 Things Retirees Should Do in a Bear Market (2022)
While you cannot control the direction of the stock market, there are actions you can take to improve your investment portfolio.
Today, we’ll share 5 things retirees should do in a bear market.
5 Things Retirees Should Do in a Bear Market
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Full transcript:
SPEAKERS
Alex Okugawa 0:00
While you cannot control the direction of the stock market, there are actions you can take to improve your investment portfolio. Today we’re going to discuss the five things to do in a bear market. And these are the things we’re discussing with our clients right now. Stay tuned.
Hey, there, it’s Alex and Anthony from one degree advisors. And if you’re new here, we are certified financial planners that help folks with all things tax retirement and investment related. So Anthony, being in a bear market, you know, has a lot of people worried a lot of people feel like things are out of control. And so today, we’re talking about, listen, we can’t necessarily control the overall direction of the market. But there are actions that we can take right now to improve the investments. And so the first thing we want to talk about here, and we’re gonna get into all five, but the first thing is tax loss harvesting,
Anthony Saffer 0:53
Nobody likes losses in their investment portfolio, but they’re part of the cycle. And specifically, when we’re talking about a non retirement account, taxable account, taking losses can help to save taxes overall. And so by taking a loss, we can either offset other gains, the IRS allows us to offset regular income or ordinary income up to $3,000. And then if you still have losses beyond those two things, you can carry those losses forward.
Alex Okugawa 1:21
Now, I think it’s important to remember as well, I mean, when we look at tax loss harvesting with our clients, it’s actually not something you want to do like blanket across the board just for everyone blindly. And I think that’s where a lot of people get this, like mistaken. And they get this wrong as they go, Well, every year, I’ve got to constantly be harvesting losses, it can actually lead to like worst performance or worst tax performance. If you’re doing that, really you should be looking at in this specific year, or maybe something’s that might be coming up. Am I going to have a situation where tax loss harvesting makes a lot of sense, if you’re someone in a low tax bracket, and you have a long time to grow, tax loss, harvesting might actually be like a negative impact for you. So you got to know what you’re doing and make sure you do it the right way. The second thing here is reallocate, and basically replacing what you don’t want.
Anthony Saffer 2:13
Yeah, so I was just doing this for a client the other day, there were certain investments that they had that were that were highly appreciated, we didn’t necessarily want them in the portfolio, but to sell them would be a major tax, there was no red flags necessarily with the investments. But by taking some other losses, we were able to also sell those particular holdings at a gain, offset them reallocate the portfolio, get it closer to where we want it. And in the end, it’s more tax efficient going forward.
Alex Okugawa 2:41
And this is a this is especially in like taxable accounts, like a brokerage account. I mean, this is what happens over time over the years, like you sometimes get a client that comes to you and they got what I call like a Frankenstein portfolio, there’s just all these things that it kind of just bolted on over the years, because like, I can’t do anything with it, because if I try and change these investments, it’s going to create a tax bomb. So years like this year where markets are down can present an opportunity to strategically just fine tune and update the portfolio, which is a good thing. The third thing here is rebalancing, which is just a fancy way of saying getting your investment plan back to target.
Anthony Saffer 3:19
That’s right, and it’s just resetting the plan. So in early 2021, for instance, when we were rebalancing, it was really taking some profits off the table from stocks and resetting them towards more conservative assets in order to keep that plan in place. Now you go into 2022, or stocks are down more significantly rebalancing, what it’ll tend to do is take from the more stable assets, and then move into those assets that are at a deficit within our plan, which are typically like the equity type investments like stocks.
Alex Okugawa 3:52
Now, the fourth thing here, and again, some of this has to do attack, or a lot of these things have to do with taxes. But the fourth thing here is a Roth conversion, which again, for a lot of people can be really, really powerful,
Anthony Saffer 4:04
And so we’ll put this simple illustration up on the screen here, and you can see that in the dips. That’s where you really want to take advantage of Roth conversion. If it makes sense. This is not a blanket recommendation for everybody, you have to really look at your your individual financial and tax plan. But the time to do it is when it’s low. And here’s why is because when you convert traditional IRA money over to a Roth, which is which is tax free, right? Is the time that you do it, it’s taxable. It’s a taxable event. If I move $10,000 over to a Roth, I’m paying taxes on that $10,000 Well, you want to do it while the value is low, so that way it can recover in the Roth IRA and that growth is tax
Alex Okugawa 4:47
free. The way I like to think about this as well is like it’s almost like you’re converting more shares, right? So right, like now my shares aren’t worth as much so I can convert $100 100 It shares over into my Roth, and actually pay less tax. So when the market eventually recovers, I get more of that that rubberband effect in my Roth conversions. Of course, the other thing we have to be careful of with Roth conversions is not just like your tax brackets. But there are those sneaky, those sneaky taxes that a lot of people don’t think about, like Medicare premiums, which is really important.
Anthony Saffer 5:22
It really does take some more planning, it’s not as simple as just just a percentage that you that you put all the way across the board, we’ll produce a video on Roth conversions, we’ll post that as well.
Alex Okugawa 5:32
Absolutely. The fifth thing here is honestly, if stocks are down, it may not be a bad item, bad time to buy more growth assets,
Anthony Saffer 5:40
like stocks. Yeah, a lot of times people can think of this more in like, the real estate realm is like, hey, if that house down the street goes on sale, if it’s down 20%, from where it’s at today, like I’d love to buy it as a as a rental because we can see it, it’s right in front of us. Within an investment portfolio can be the same right is stocks might go down, if I can buy them on sale for 20 or 30%. And know that I have a long term timeframe. With that, it’s a better time to buy. We’re not going to time the market perfectly.
Alex Okugawa 6:09
But that’s the hard part about all this is there’s a reason why stocks are 20 to 30% off their highs and so people go Well, now’s not a good time to buy, look at all these situations,
Anthony Saffer 6:18
right. And when we get carried away with like, Oh, I gotta be perfect with it, I gotta buy it at the exact bottom, it’s probably not going to work you have to have, you know, where in this in this situation great is the enemy of good. Usually it’s the other way around. It’s just when they’re down on sale, adding a little bit but you also pay attention to the risk. We’re not saying be extreme with it while your portfolio over to grow
Alex Okugawa 6:40
well. And that’s again, where a good advisor can help you walk through all these scenario scenarios to say like, what does make sense for you? And what would I consider right? If I was in your shoes, right? I’m a fiduciary, I’m going to do what I believe is best for you. Here’s what I would recommend. So you know, you might consider something like that. So again, to recap all these these five topics, again, tax loss harvesting, it can make sense based upon your specific situation. Number two, which is reallocating and replacing maybe what you don’t want again, it can be a good time to update the portfolio number three rebalancing, which is getting your plan back to the target. Number four Roth conversions. Again, a great tax planning strategy. It doesn’t make sense for everyone. But for some people, it can have a massive impact. And then number five, like hey, if you have the opportunity to buy some stocks while they’re down, and if it makes sense within the context of your plan, now’s not a bad time to do it
Anthony Saffer 7:31
And don’t make these these implementations in a in a vacuum. You do them all within the context of a plan looking at the big picture. Absolutely.
Alex Okugawa 7:39
And now let us know what you think. What are you doing to take advantage of the bear market? Let us know your thoughts in the comments down below. And if you enjoyed today’s video, please like and subscribe for more. Thanks for watching.
Transcribed by https://otter.ai
The One Degree Blog
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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures
