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3 Strategies To Make The Most Of A Bear Market Thumbnail

3 Strategies To Make The Most Of A Bear Market


Today, I want to talk about three strategies that you can employ in down markets that will help you take back some of the control that maybe you feel like you're losing as you're watching everything in the news. So first I want to start by introducing myself. My name is Warren Berger. I'm the owner of luminary financial advisors. We're a retirement firm and we work with people like you that are in or near retirement. The first strategy that I want to talk about is tax loss, harvesting. So tax loss, harvesting first involves your taxable investment accounts. So this wouldn't be your retirement accounts, like an IRA, 401k. This is the other investments that you have that don't fall within those retirement structures. So the idea is that you are going to take the assets that are trading at a loss now, and you're actually going to sell those assets and book that loss.

And, and you'll carry that, that, that capital loss at the same time that you sell those securities or, you know, almost simultaneously, or right after you're going to purchase securities that are similar that keep you invested in the market. But you will have absorbed those losses. Now, why do I want to absorb losses? Well, those capital losses can be carried against capital gains. So any gains that you have in your accounts those taxes will re re be reduced by the capital losses that you've incurred. Now. you may not have the gains to match those losses. And so any losses that are that are left over can be carried over to future years. Now, you can use up to $3,000 per year of your capital losses in that carryover, but they'll be carried against capital gains. But also if it, if the, that sum is over the amount of capital gains you have in that year, it can be used to carry against ordinary income losses.

So it's a really it's really good strategy in a, not a great situation with your markets being done, but at least it's something that you can take control of that's going to help your future tax self. So there's one thing that you have to be aware of when you're doing tax loss. Harvesting is what's called the wash sale rule. And that rule is essentially that. So for 30 days before or 30 days after you sell those securities, you cannot buy the same security or an identical in nature securities. So you really want to be careful that wash roll. What happens is if the transaction ends up being considered a wash sale, you won't be able to utilize those capital losses either in that year or to be able to carry over in future years. So you just want to make sure that this strategy is right for you.

I'm not really giving you personal investment advice. This is something that should be talked about with your accountant or your financial advisor, but hopefully it's a strategy that you can really go to them with some questions and, and hopefully it's something that they can talk you through. The second strategy that I want to talk about are Roth conversions. And I'm going on the premise that you really already understand a bit about what Roth conversions are. You've probably looked at your tax situation and realized that it might make sense for you to transfer traditional IRA to a tax free Roth to take advantage of tax rates now, versus what you believe tax rates are in the future. That's the reason for the Roth conversion, but doing it in a down market when you do the Roth conversion, you're paying income taxes.

And so in, in a down market, you're taking an identical number of shares, but are now priced at a lower price and you're converting them. So ultimately you're getting the same number of shares converted, but for a lesser amount, therefore you're paying lesser income taxes. And the hope is and we're, we're counting on the historical precedent that markets tend to go up. The hope is that those markets will go up. Your securities will go up, but they'll be going up in the Roth tax free account. So you've now essentially been able to do that Roth conversion at a discount than you would've been able to in a, in a bull market or a market that was doing well. So that's another strategy once again, talk about it with your financial advisor, talk about it with your accountant. You want to make sure that you have all your ducks in a row as you're employing these strategies.

My third strategy is really about rebalancing accounts. And so when we talk about rebalancing usually when we talk to our clients and hopefully it's something that you're looking at is we try to have an asset allocation, which is generally the amount of stocks you have to, the amount of bonds you have in the portfolio. And what you may see in these kinds of moves is that the value of the stock that you have in your portfolio has gone lower at a greater rate than potentially the bonds in your portfolio, where the, where bond funds you may be using. And so now that percentage that you might have had, and, and popular as the 60% stock, 40% bonds in, in retirement accounts you may see that that's now gone to more of a 50 50, because the value of your stocks are less.

So this may be an opportune time to get back into balance. So you potentially would look to sell some of the bonds and buy additional stock so that now your asset allocation becomes more in balance. And actually you find, you may find yourself in a position where if the markets go higher in the future, those stock purchases will have benefited you in the long run. So these are just three strategies and like I said, they really have to be right for your particular situation. So if you're doing it on your own, make sure you're doing the proper research, make sure that you're applying it for your own situation. Or if you have an advisor, talk it out with them, talk to your CPA. You just really want to get the professionals involved, because there are a bit more some complications that can arise out of, out of some of these techniques. Ultimately, the idea is that you're not powerless in the face of a market downturn. We're being bombarded by

Bad news. And it beats people down after a while where they feel like there's, there's nothing left in their control. Employing these strategies is a way of taking control of your portfolio and doing something. Now that's going to benefit you in the future. So I hope this has been helpful if it is, I'd appreciate it. If you'd subscribe to the channel or just press the like button. And if you look in the description down below there is a link to be able to set up a call with me. If you feel like you would like some more information, or you just want another set of eyes on your financial situation, I'm happy to set up a 30 minute call just to have a discussion. I'm also including some other some checklists and some flow charts that I think might be helpful for you as you go through your financial journey. I appreciate you watching, and I hope to see you in the future.