The recent implementation of widespread tariffs has caused a downturn in our stock market. During these periods of market volatility, it is normal for inventors to get a bit nervous or uneasy. Whatever you are feeling, we wanted to provide you with four tips for managing this period of market volatility.
1. Keep Long-Term Perspective
It is important for the markets to experience volatility. Typically, the markets will experience several 5% corrections a year, one 10% correction a year, and 15% correction every three years or so. While it is easy to focus on the short-term downturn, historically, the market has recovered and delivered long-term gains to the patient investor.
Also, remember to focus on the bucket that is being affected. Are the investments impacted set-side for long-term goals, or will they be needed years away? Remember the short-term savings and other assets that are set aside to help weather these periods of market volatility.
2. Rebalance Your Portfolio
While you may not want to overhaul your long-term investment plan, periods of market movement naturally shift your portfolio away from their long-term targets. Rather than rebalancing solely based on the certain time of year, consider rebalancing your portfolio during periods of market volatility. This approach allows you to trim assets that have recently outperformed and purchase assets that have recently underperformed.
For those with capital on the sidelines or who are regularly investing, a market downturn can be a great opportunity to rebalance our portfolios by investing our idle cash into our portfolios. Downturns may present an opportunity to purchase stocks and other securities at favorable valuations.
3. Strategic Tax Moves
Periods of market volatility can create a couple of tax opportunities for investors:
- Tax Loss Harvesting – By identifying and selling positions with unrealized losses, you allow those losses to be recognized, which can be used to offset future gains. While not a benefit in qualified or retirement plans, this strategy can provide significant tax benefits.
- If looking to implement this strategy be sure to avoid running into the wash sale rule which disallows losses if purchase a substantially identical stock or security within 30 days before or after the sale.
- Roth Conversion – If you were thinking about converting funds from a pre-tax retirement account into a Roth, now might be the time. By converting the assets from an account that has recently declined, you experience less of a tax impact today. In addition, the future growth has moved into an account that can eventually be tax-free!
4. Stick to Your Plan
While it can be tempting to sell out of stocks to avoid further losses, that may not be the best strategy as it can be extremely difficult to accurately time and predict the market’s movements from day to day. If we look at the S&P 500, the average annual return was 10.4% from January 3, 2005, through December 31, 2024; however, if we missed the ten best days during that time frame, an investor’s annual return would have fallen to 6.1%. During that time frame, seven of the ten best days occurred within two weeks of the worst days. It is best to stick with your plan and avoid any emotional or reactionary decision making.
How can Peoples Bank Wealth Management Group help?
If the markets still have you worried, we recommend visiting with a financial professional about your situation and portfolio. Our team of financial professionals would welcome the opportunity to assist you. Contact Peoples Bank Wealth Management Group to learn more how we can help you!