Market gives and market takes away. That last part is called a bear market – where the value of the stock market drops by more than 20%. Here are a few US Bear Market statistics starting in 1950 through 10/13/2022:
During the Bear
Now that we are in a bear market, here are some actionable ideas for how to harness that bear and make it work for you!
- Roth IRA Conversion: With a drop in the market, you can pay less tax to move your shares from pre-tax to a Roth account.
- Tax-Loss Harvesting: Take losses to get a tax benefit for this year and possibly into the future.
- Dollar-Cost Averaging: Keep investing into the falling market to buy more shares and get a larger recovery when it arrives.
- Rebalance Your Portfolio: Move money from assets that have performed relatively well into ones that have done relatively poorly. This works the same way as dollar-cost averaging – more shares for the recovery.
- Limit Withdrawals: Preserve the assets for the coming recovery. A draw from your portfolio when it is already beaten down can do irreversible damage.
- Get More Aggressive: This is not for the faint of heart. You’ll likely be “wrong” for a time when the market drops further. You’ll be rewarded when the recovery comes. Be sure you can commit to a long timeframe if you go this route.
After the Bear
When the bear market is in the rearview mirror, we would do well to reflect on our experience and re-evaluate where the portfolio is and what the new opportunity set looks like.
- Reallocate Toward Fixed Income: Interest rates are on the rise. If they stay elevated and the stock market recovers, it may be a good opportunity to switch things around.
- More Cash? If you felt the squeeze during this bear market, raise cash so that you’ll be more comfortable during the next one. Markets will continue to cycle, be prepared for it!
If you are unsure how all of this applies to your situation, don’t sit there and scratch your head. Give us a call at 269.985.0200 or book a meeting online today. We would love to help you figure out how to best move forward.
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.
