It is no secret that with the ongoing COVID-19 pandemic, uncertainty remains our foreseeable constant. As we all adjust to working remotely, self-isolating and social distancing, we wanted to take a moment to embrace some strategic thinking around the recent market volatility and what that means for personal wealth management and financial planning. While these past few weeks have seen a great deal of market gyrations in response to the Coronavirus outbreak, there are steps that can be taken to deal with the ups and downs.
- For Those Concerned About Their Investments…
There are a lot of questions investors have, the main one being – what do I do now? First and foremost, try not to let the emotions of the market get to you. Our emotional selves are screaming “sell,” while our impartial investor side whispers “buy.” Listen to the whispers. As investors, we must expect and do our best to embrace market volatility. It isn’t a question of if, but when. As we weather the emotions of the market, it is important to remember that patience and discipline are key ingredients of successful long-term investing.
Another thing to keep in mind, if selling an investment, when is the right time to get back into the market? No one has a crystal ball that tells when the market will hit its bottom before rising back up. While your first instinct during this time of major market swings might be to “get out while you can,” you have to remember that investing is a long-term game. Staying invested and remaining on course ensures you will get the full benefit of the market’s recovery whenever it occurs. In other words, by selling and removing yourself from the market at a low point, your investment is not only worth less, but you also compound your loss by not allowing the investment to recover.
For folks investing outside of retirement accounts, work with a financial advisor and your CPA to create some tax benefits by harvesting capital losses. If done properly, investments that have lost money can be sold to realize a capital loss, which can be used against capital gains, indefinitely. However, there are some caveats, so be sure to get sage advice from your CPA and financial advisor.
For folks that are already retired and drawing money from their portfolios to maintain a lifestyle, keep the following concepts in mind:
- Consider temporarily decreasing your withdrawals from your investment portfolio(s).
- Use cash that you have on the sidelines when possible.
- Defer elective medical work, or vacations.
- Trim down on non-essentials until the portfolio recovers.
Remember, spending while your portfolio is declining compounds your losses and takes a much longer time to recover from once the market begins to stabilize, so temporarily cut spending where you can.
A Few Financial Planning Tips to Consider:
Now is a good time to convert an IRA to a Roth IRA. While the market value of securities is low, you can convert positions in-kind from your IRA to a Roth IRA and pay tax on the value it is today, a lower value. Also, it might be a good year to do a Roth conversion if your income is lower than other years from being forced to take unpaid leave or go on unemployment. A year when both your income is lower than normal and the value of your account is lower than normal is a good time to convert to a Roth.
Secondly, it might make sense to gift securities to family members. If you are still on track for your own retirement (see your advisor to be sure) you could gift securities in-kind to a brokerage account for beneficiaries. The gift amount is the market value of today, rather than what it could be soon or what is was recently. For example: if you have a stock position that recently decreased in value by 30%, you could gift a position that was $19,500 a few weeks ago for $15,000. $15,000 is the annual exclusion amount per person, $30,000 per married couple in 2020. Gifts of over the annual exclusion amounts will require an informational gift tax return.
- For Those Who May Be Out of a Job Right Now
Most job losses due to COVID-19 are likely short-term. Still, if you are out of a job and uncertain about where your next paycheck is coming from, there are steps you can take to alleviate immediate-term financial burdens. Take a long look at your needs and cut out any discretionary wants. You can do this by categorizing your expenses over the last few months and then focusing on the essentials needed during that period of time. However, it is important to remember not to use credit cards to cover your wants. If needed, only use your credit card to cover essential needs. Our main point: start cutting expenses now, so you don’t continue to spend outside of your means while incoming dollars are stretched or non-existent.
If you have an emergency fund (we recommend keeping 3-6 months of funds on-hand to cover expenses in a time of need), now is a good time to put it to use. The Coronavirus outbreak is considered an emergency.
Also, some additional perspective, not all food items are necessities. While you are not working you may have more free time, so you may not need to purchase packaged meals or “convenience food.” Buying ingredients in bulk and taking the time to cook can be much less expensive if you are not wasteful with the purchased ingredients.
Lastly, whether a short-term or longer-term solution is needed for a recent job loss, now is a time to channel opportunism – there are many companies (Amazon, UPS, among others) looking to hire 100,000’s of additional skilled employees to support increased demand in their businesses due to COVID-19. You can also take this time as an opportunity to home in on new skillsets that will make you a more qualified candidate when you re-enter the job market.
- Be a Good Neighbor
If you have the fiscal ability to give back to your community, please do so. Simple things like tipping a bit extra to those who deliver you take-out, buying gift cards to some of your favorite local businesses to use once the COVID-19 outbreak is contained – all these little acts of kindness can keep small businesses afloat during this tough time.
Reaching out to neighbors in your area and ensuring people have what they need, especially the elderly or disabled, can be a gesture that is appreciated beyond words. All of our communities – both home and abroad are feeling the effects of the Coronavirus – compassion goes a long way as we are all in this together.
And, remember that even though it doesn’t feel so in the current moment of time, this difficult period is temporary – the virus will fade in the fullness of time and things will go back to a relative “normal.” Take a breath, re-evaluate and have the confidence and long-term foresight that this too shall pass.
Important Disclosure: Beacon Pointe does not endorse and is not responsible for the content, product, or services of other third-party sites. This article has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. This material provides general information only. Beacon Pointe Advisors does not offer legal or tax advice. Private legal counsel alone may be responsible and relied upon for these purposes. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein.