With the ongoing pandemic affecting the global economy, the stock market, supply chain, and employment numbers are dominating headlines. When the market is going through a period of volatility, it can be unnerving to see the negative effects on your portfolio. However, there are a few things you can do to take advantage of market volatility that don’t require making sacrifices in your investment portfolio.
The value of securities has waxed and waned through the pandemic. If your securities are currently down in value, you could potentially sell them at a loss in order to reduce your tax liability. With the cash you obtain from selling your securities, you may be able to find another position in the market to take advantage of.
Diversify Your Portfolio
If you have a concentrated stock position in a company from an inheritance, sale of business, or long-term employment, you may want to consider diversifying your portfolio more. If the value of your portfolio is comprised of 10% or more of one stock, you may be in too concentrated of a position. If the business you are heavily invested in goes under or suffers a big loss, your portfolio will take a big hit. During a downturn, you may be able to reduce your exposure to the ups and downs of the market without many tax consequences.
Shop the Bargains
Keep in mind that investing isn’t about short-term returns. Investing should be a long-term plan. Depending on your risk tolerance, now is the perfect opportunity to shop for sales in the market because good companies take stock hits just as poor ones do, making the valuation of those companies seem attractive. Balancing your portfolio during a downturn can create extra return when the market stabilizes.
Refinance your mortgage
As the market continues to decline, interest rates continue to decline as well. As of the writing of this article, refinancing applications are exceeding the capacity that the lenders have to deal with new applications. Because of that, rates have not stayed as low as you’d expect. Even still, it may be worth trying to get on a refinance list if your current mortgage rate is too high. Just saving 1% in interest on your mortgage can lead to thousands of dollars in savings over the life of the loan.
Example: If you have a 30-year mortgage on a $300,000 home at 5.25% you could save $387 a month ($4,644 a year) on your mortgage if you refinanced the $300,000 at 3.25% over a thirty year term. A 30-year refinance you could save $126,000 in interest payments if your rate was 3.25% vs. 5.25%.
Rev Up 529 funding
A 529 plan, used for funding college for your child or grandchild, can be used as an investment account of sorts if the beneficiary has many years until they’ll need the money. You could make a large contribution if you believe market conditions will eventually improve, but you must take into account your cash on hand and your necessity for liquidity.
Even small donations can help lower your tax liability. With the new charitable tax deduction, you can claim an “above the line” deduction of up to $300 for cash donations to qualified charities. Typically, in order to qualify for this deduction, you need to itemize your tax return on Schedule A, but not this year.
These are just some of the many ideas that can be helpful for market investors looking to make the best of a dramatic market downturn. A financial advisor can help you examine all of your options, taking your unique circumstances into account.
Information sourced from Modera Wealth Management in Atlanta, GA.
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