Navigating Turbulent Markets
My knuckles cannot turn white. But I was gripping the yoke so hard; they would have turned white if it were possible. It was a chilly Saturday afternoon in February and the C172 was bumping along in the sky. Uncomfortable, unpleasant, and undesirable… boy was I focused. I was not yet a certificated pilot. My instructor in the right seat did not seem to show any alarm, so I followed his lead on the outside. On the inside my heart still sank when the plane banked hard to the right or left and there was a noticeable lag of a few seconds before the control input took effect.
The current market volatility reminds me of that flight. We understand that volatile markets can feel uncomfortable, unpleasant, and undesirable, and boy are we focused. We are focused on our client’s current needs, their long-term goals and any opportunities presented by the downturn.
We advise clients to take a long-term view of the markets. Over time, markets have demonstrated an effective and efficient ability to generate consistent returns despite the turbulent times. Sometimes a simple shift in perspective will do wonders. Avoid focusing on the day-to-day gyrations of your account balance and remind yourself why you’re investing in the first place.
If your investment goal is funding retirement and you’re more than a decade away, count your good fortunes. Stick with your savings and investment regimen. You’re the purchasing the same securities at a cheaper price.
This can be an uncomfortable time if you’re quickly approaching retirement or just entered retirement and you still have 2 decades or more of retirement expenses to support. It’s an excellent opportunity to review your expenses and the impact that inflation has had on your cash flows needs. You can also evaluate your distribution strategy. Here are a few things you can consider if you’re concerned about your ability to meet your retirement expenses.
- Know your cash flow needs
- Delay large distributions for one-off experiences or purchases
- Set up a monthly distribution that will support your expenses
- Position specific assets in your portfolio to support your shorter-term income needs.
- Seek to minimize tax drag through diversifying income sources
Opportunities presented by market volatility
- Market volatility helps you test and understand your risk tolerance. Having the appropriate risk tolerance is important because you are more likely to stick with your investment plan when it’s within a range that you’re comfortable with. Time in the market, along with your asset allocation is a largely determines the market returns you can expect to receive.
- Market down-turns can be thought of as buying assets at a discount for long-term investors. P/E ratios are beginning to return to their averages for many U.S large cap stocks. This means stocks are trading at fair values as opposed to trading expensively. Who doesn’t like to purchase goods on sale?
- Market pull backs can also present opportunities to consider a Roth conversion. The ability to have funds grow in a tax-free account can be attractive. There are many other considerations that must be considered, such as the desire and ability to pay the taxes due on the conversion. Lower account values can help with the decision to convert.
- Tax loss harvesting is another opportunity that some clients consider in a down-market. If the past 10 years of market returns has created concentrated positions in your portfolio, tax loss harvesting may be the way to rebalance those positions. You can take advantage of some securities with a loss while realizing gains in other parts of your portfolio to offset the tax that is due on those gains.
The opportunities that apply to you will depend on your needs and your plan. When turbulent times come, we can all benefit from staying focused on our goals and the items that we can and should control. This bout of turbulence will pass also.