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Description

We are supporting our clients during this time and posting blog entries on our website with our investment thoughts during this difficult time:

Steps that can be taken following market declines:

  • IRA Contributions: For those considering contributing to any type of account, prices on all securities are far less than they were a month ago. “Sell high and buy low” is one of the oldest investment principles, or as Warren Buffett put it — ‘Be fearful when others are greedy and greedy when others are fearful’.
  • Reduce Distributions: On the other side of the equation, if you are taking regular distributions that can be reduced or you can delay a planned purchase, you will give your portfolio the opportunity to come back in value when we regain some stability.
  • Realizing Losses: Selling positions that have gone down in value realizes a taxable loss that can offset gains now and in the future. This should be done only on positions that can be replaced by “like” positions so that the investment strategy is maintained.
  • Realizing Gains: For clients with positions that still have large taxable gains, these gains have been reduced greatly as well. Positions with losses can also be sold at the same time to balance the tax situation. Again, all positions sold should be replaced with “like” positions to maintain the investment strategy.
  • Roth Conversions: Growth inside of a traditional IRA is fully taxable when distributions are taken. Inside of a Roth IRA, all growth is tax free. With IRA values down and likely to come back at some point, converting some or all of these assets to a Roth IRA allows the “come-back” gain amount to be completely tax free when distributions begin. Taxes, but not penalties, are applied to the converted amount.  In a year where many incomes could be lower, the taxes paid on the amount that is converted might be paid from a lower tax bracket as well.
  • Rebalancing portfolios towards more growth: Market corrections create a natural de-risking of investor portfolios. If a portfolio was 60% stocks and 40% bonds in January, the asset mix might now be 50-50%. Repositioning to the strategy that was originally implemented to meet a client’s goals will allow for buying positions that have gone down in value while selling those with more stable current prices.

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