When markets are volatile, it’s easy to feel anxious about your investments. But downturns are a normal part of the market cycle... for long-term investors, they’re often more of an opportunity than a threat.
Here are several financial moves to consider when the market is down:
1. Stay Calm and Stay Invested
Emotional decisions can be costly. Historically, those who stay invested during downturns tend to recover and grow their wealth over time. Trying to time the market often results in missing the recovery… some of the best days come right after or during the worst ones.
2. Rebalance Your Portfolio
Market swings can throw your portfolio out of alignment. Rebalancing (selling assets that have held up well and buying those that have dropped) helps keep your strategy on track and may even result in you buying risk-on assets low.
3. Invest Opportunistically
Downturns can be a chance to invest at a discount. If you have extra cash or are making regular contributions, consider increasing them. Dollar-cost averaging works in your favor when prices are lower.
4. Consider Tax-Loss Harvesting
If you’re holding investments in a taxable account that have declined, selling at a loss can help offset gains elsewhere or reduce your taxable income. It’s a strategy to help make the most of a tough situation and then you can re-purchase a different investment to make sure you stay in the market.
5. Consider Roth Conversions
*This strategy is typical for retirees or those with income that is lower this year than other years.
Market downturns present an opportunity for Roth conversions. When account values are down, converting traditional IRA/401(k) assets to a Roth IRA means you’ll pay taxes on a lower balance. Also, once the assets are in the Roth, any recovery and future growth happens tax-free. It can be a great move especially if you expect to be in a higher tax bracket in the future.
6. Review (But Don’t Overreact to) Your Financial Plan
Use this time to revisit your goals and risk tolerance. A downturn may highlight areas where adjustments are needed, but it doesn’t necessarily mean your plan is off-track. A proper financial plan should be designed to weather downturns like this.
7. Focus on What You Can Control
You can’t control the market, but you can control how much you spend, save, and invest. Tightening your budget, boosting your emergency fund, or increasing retirement contributions are moves that pay off regardless of what the market’s doing.
Final Thought:
Market downturns aren’t fun, but they are normal. A thoughtful, disciplined approach turns volatility into opportunity. If you’re feeling unsure, don’t go at it alone. Let’s talk through your goals and make sure your strategy still fits.
Together, we can work to keep you on-track toward your financial goals.
Request a consultation to learn more.
Read more articles by Ryan Johnson