Market Volatility
- Bruce Kern
- Apr 30
- 5 min read
Subject: Ways you can go on offense during this market volatility
Recent headlines and the market's pullback may understandably leave you feeling uneasy. It's moments like these when Sir John Templeton’s famous insight becomes especially valuable: “The four most dangerous words in investing are: ‘This time it’s different.’”
While the underlying cause of market volatility may be different from that which we experienced during other periods of volatility, the reality is that a market pullback is not unusual or unexpected.
Consider this: from 1980 to 2020, the Standard & Poor’s 500 experienced average annual drops of approximately 13.7 percent at some point during the year, yet still finished positive in 75 percent of those years. Corrections are not anomalies—they are a natural part of the investing cycle. Even during more severe events like the 2020 COVID drop, the S&P 500 fell over 30 percent, only to recover within six months and reach new highs.¹
These data point to the fact that stock market pullbacks are a normal part of the market cycle and should be anticipated. So, while pullbacks can be unsettling in the short term, history suggests that staying invested and maintaining a long-term perspective can help you pursue your goals. Instead of viewing pullbacks as a cause for fear, they should be seen as a normal and even necessary part of the market's health and growth.
It’s also worth noting that some of the best investment days historically come on the heels of the worst ones. That’s why, even though it can feel natural to go into defense mode during volatility, there are some potential ways to go on offense right now.²
Here are a few proactive strategies to consider:
1️⃣ Maximize Retirement Contributions Now and Review Allocations
Consider front-loading annual contributions to your 401(k), SEP IRA, or employer-sponsored retirement plan. (Check your plan to see if this option is available.) It's also smart to review your allocations and see if your future contributions are well-diversified to match your long-term goals. For new contributions, it can be an opportunity to introduce additional diversity.
2️⃣ Contribute to a Roth IRA
If you’re eligible, making a Roth IRA contribution during a market dip may amplify the power of tax-free growth.
3️⃣ Explore a Roth IRA Conversion
Converting traditional IRA assets to a Roth IRA during a market downturn could allow you to pay taxes on a lower balance today, setting yourself up for tax-free growth down the road.
Note: Roth conversions may have tax implications, so it's essential that we coordinate with your qualified tax professional before taking action.
4️⃣ Reassess Your Broader Financial Strategy
Volatile times are a great reminder to check that your emergency fund, asset allocation, and broader strategy are built to weather market shifts—and to stay patient, knowing that short-term storms don't define long-term success.
Please reach out if you’d like to discuss any of these strategies or if you just want to share your concerns and see if you're still on track. Remember, you’re not navigating this market alone. Although this time volatility may feel different, history tells us that what follows should hopefully give you a sense of confidence that your long-term strategy remains intact and you remain on track.
Stocks are measured by the Standard & Poor's 500 (S&P 500) Composite Index, which is an unmanaged index considered to be representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Individuals cannot invest directly in an index. The returns and principal values of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.
Asset allocation and diversification are approaches to help manage investment risk. Asset allocation does not guarantee against investment loss.
With a 401(k), once you reach age 73, you must begin taking required minimum distributions (RMDs) from your 401(k) or any other defined contribution plan in most circumstances. Withdrawals from your 401(k) or any other defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
With a traditional IRA or SEP-IRA, once you reach age 73, you must begin taking RMDs from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
With a Roth IRA, contributions are phased out for taxpayers with adjusted gross incomes above a certain amount. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.
This article is for informational purposes only and is not a replacement for real-life advice. Consult your tax, legal, and accounting professionals if you are considering adjusting your investments for tax reasons.
Sources:
Advisory services are offered through Mountain High Wealth Management LLC, a DBA of Forefront Advisor Network.
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