Financial Planning Strategies to Consider When Markets Drop

Elias Crist, Associate Relationship Manager

While logging in and seeing a reduction in the value of your investment accounts can be unnerving, periods where markets have pulled back can also present unique opportunities, depending on your individual situation and appetite for risk. Below are some strategies to consider, if you are:

- Contributing to Employer Sponsored Plans - i.e., 401(k) or 403(b)

  • If you are accustomed to maxing out your 401(k) annually through paycheck deferrals, perhaps consider temporarily changing your contributions to be top heavy and increase your withholding contributions during the earlier part of the year to take advantage of suppressed asset prices. One thing to keep in mind is that maximizing this account out over the course of a few months (vs. the entire year) will have a dramatic impact on your cash flow, so you will want to make sure there is sufficient cushion.

- Contributing Annually to a Qualified Plan (IRA or Roth IRA)

  • If you plan to make an IRA or Roth IRA contribution in 2022, doing so while markets are down could help avoid buying at the top. In addition, if you have not yet made your 2021 IRA or Roth IRA contribution, you have until April 15th, 2022, to do so. Keep in mind that there are limits to who can contribute to an IRA or Roth IRA, and the Regent Peak team can help you find out if you are eligible.

- Considering Roth Conversions

  • When you convert funds from an IRA to a Roth IRA, that conversion amount will be taxed at ordinary income rates come tax time. With that in mind, if you plan to convert a portion of your IRA to your Roth IRA, or converting it entirely, doing so when the IRA balance is lower could result in a meaningful drop in the tax liability that you will owe as a result of the transaction.

- Using a Dollar Cost Averaging Strategy

  • If you have a large amount of capital to invest and have been doing so in equal amounts every month to avoid buying at the top, it may be advantageous to increase your purchases during times of market volatility and put cash to work while equities are at lower price points.

- Considering Gifting

  • If there are assets that you plan to gift in the future, going ahead and gifting an asset while its valuation is lower can be a powerful tax saving strategy for you and your heirs. Keep in mind that you can take advantage of your annual exclusion (up to $15,000 per recipient) by using securities that have dropped in value.

- Tax Loss Harvesting

  • When markets pull back, your Regent Peak advisor will be looking at your taxable portfolio to see if there are opportunities to “tax loss harvest,” where we can sell positions that have entered loss territory while simultaneously trimming large, appreciated positions. Doing so allows us to rebalance your investments while minimizing taxes.

- Saving for Education

  • Like the IRA contribution strategy, if you are contributing monthly to a 529 plan for your child’s future education costs, it might make sense to go ahead and make the full year contribution while markets are lower.

If any of the above strategies interest you or you would like to discuss further, your Regent Peak team stands ready to help and to make sure that a given financial planning or tax strategy also aligns with your investment goals, risk tolerance, and overall financial plan. Contact us to learn more.

Elias Crist, Associate Relationship Manager