Turning Lemons into Lemonade

Robert Ramos |

This may be the time to put that adage to work!! We can fall prey to the incessant negativity around us:

  • Yes, the US bull market that started in early March of 2009 has come to an end. Did anyone truly expect that it was going to last forever?
  • Yes, the US economy is may post some bad numbers over the next couple of months or quarters. Does anyone think the US economy will no longer exist in 2021?

Or we can look thru this period and see what future opportunities today’s negativity presents! Consider the opportunities that were to be had in March of 2009. How many people do you know who have been kicking themselves over the “woulda, coulda, shouldas” after having missed the opportunity that 2008/2009 presented???

So how do we turn the lemons represented by the end of a historically long bull market into lemonade? Here are a few things to consider:

  • Convert Traditional IRA assets to a Roth:
    • Do you have a large IRA? With market values down, the tax bite to convert is reduced.
    • Individuals on Medicare: Don’t convert so much that you end up paying higher Medicare Premiums for a year.
  • Tax loss harvesting: In times like these some of our managers will book losses in order to reinvest elsewhere. A loss that is realized today can be used to offset capital gains in the future.
  • Reinvestments of dividends and capital gains: Most of our clients have are weighted towards larger companies that pay dividends and bonds that generate interest. Dividends and interest will now be reinvested at these lower levels.
  • Very good companies are on sale: Everyone prefers buying a product when it is on sale, why wouldn’t you buy a piece of the company that makes the item when the company is on sale?
    • If you have excess money sitting in the bank earning next to nothing, consider buying a portfolio of good companies while they are on sale!
  • Diversified portfolios are designed to reduce exposure to down markets. We cannot think of a single client who is 100% invested in stocks. The bonds in your portfolio cushion the impact of a negative stock market.

In closing: Bouts of market volatility are an unnerving, but normal, feature of long-term investing. They’re not fun, but you should expect market declines periodically throughout your investing career. As such, our investing principles don’t change when the investment markets are down, and yours shouldn’t either.

 

Disclosures

The information contained is derived from sources believed to be accurate. However, we do not guarantee its accuracy. The information contained is for general use and it is not intended to cover all aspects of a particular matter. The views expressed are our own, and do not necessarily represent the views of The Investment Center, Inc. IC Advisory Services, Inc. or any other member of their staff. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

 

Past performance does not guarantee future results. Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against a loss. All indices are unmanaged, and performance of the indices includes reinvestment of dividends and interest income and, unless otherwise noted, is not illustrative of any particular investment. An investment cannot be made in any index.