As market volatility has increased in recent weeks, we wanted to reach out and let you know that we are closely monitoring these developments. Indeed, we anticipated that volatility would return in early 2025. While headlines may cause concern, please know that our team has been actively preparing for a slight market pullback.
Market pullbacks often create planning opportunities for thoughtful investors. With this in mind, we have identified eight key strategies to consider during the market pullback:
- Make your IRA and retirement plan contributions now.Why wait until the end of the year when you can make these contributions at a tradable low?
- Consider Roth conversions. Market declines effectively provide a tax break on top of the many benefits of a Roth IRA. Don’t forget about Back Door Roth conversions as well.
- Put idle cash to work strategically in today’s discounted market. Many clients have been accumulating cash while searching for an attractive entry point into the market. While pinpointing the exact market bottom is impossible, the current market pullback offers attractive entry points for long-term investors. Consider a disciplined dollar-cost averaging approach to methodically build positions at these reduced prices, potentially enhancing your future returns when markets eventually recover.
- Consider your cash flow.While most of our clients’ distributions come from cash accounts or conservative investments in order to reduce your worry about selling in a down market, not everyone is set up that way. If you are taking distributions from a more aggressive portfolio, consider delaying distributions until the market recovers, and come in and talk to us about using the bucketing approach for future distributions.
- Consider rebalancing your portfolio, whether that means selling overvalued and less desirable positions, or rotating to areas that are designed to weather volatility.These areas could include credit opportunities, special situations, hedged equity, and fixed income.
- Consider tax loss trading with pullbacks across the market and within the technology sector especially. However, don’t run afoul of the wash sale rule when selling equities. This rule bars taxpayers from deducting losses on securities that they replace within 30 days.
- Consider getting more aggressive with your asset allocation strategy if you have a long-term time horizon and the proper temperament to handle the volatile markets.
- Review gifting strategies in light of the declining market.Some strategies make more sense when assets are depressed, such as gifting appreciated stock and funding trusts such as Grantor Retained Annuity Trusts (GRATs), Charitable Lead Annuity Trusts (CLATs), and Intentionally Defective Grantor Trusts (IDGTs). Additionally, annual gifting of up to $19,000 per recipient allows you to transfer more stock with the tax-free limit while potentially reducing your overall estate tax liability, enabling your heirs to benefit from the future rebounds in the market. Also review the impact of declining markets on an estate if in probate and distributing assets.
If any items listed above are of interest to you, please reach out to us with the link below and email our team. We will discuss your specific situation and what strategy makes the most sense for you: https://www.pinnaclewealth.com/#contact
Remember that market pullbacks, while uncomfortable, are a normal and expected part of the investment cycle. Our investment approach is deliberately designed to weather these periods, and we remain focused on your long-term financial goals. We are here for you during this market volatility—please contact us with any questions or concerns about your portfolio.
Converting from a traditional IRA to a Roth IRA is a taxable event.
This article is not intended to provide specific legal, tax or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
