Ways You Can Go on Offense During Market Volatility
- Bruce Kern
- Apr 30
- 4 min read
Recent headlines about the market's pullback may understandably leave you feeling uneasy. It’s during times like these that Sir John Templeton’s famous insight becomes crucial: “The four most dangerous words in investing are: ‘This time it’s different.’”
While the underlying causes of market volatility may differ from past experiences, remember that a market pullback is not unusual or unexpected.
Understanding Market Corrections
Consider this: from 1980 to 2020, the Standard & Poor’s 500 index experienced average annual declines of about 13.7 percent at some point during the year. Remarkably, it still finished positively in 75 percent of those years. Corrections are not anomalies—they are a standard part of investing. Even during severe events, like the 2020 COVID drop, the S&P 500 fell over 30 percent but recovered within six months to reach new highs.
These data points highlight that stock market pullbacks are a normal part of the market cycle. They should be anticipated, not feared. While pullbacks can be unsettling in the short term, history shows that staying invested and keeping a long-term perspective can help you pursue your goals. Instead of viewing pullbacks as frightening, consider them a normal, even necessary, part of the market's health and growth.
Taking an Offensive Approach
It’s also important to realize that some of the best investment days historically follow the worst ones. Thus, even though it might feel instinctive to shift into defense mode during volatility, there are ways to go on offense right now.
Maximize Retirement Contributions Now and Review Allocations
Consider front-loading annual contributions to your 401(k), SEP IRA, or employer-sponsored retirement plan. Check if your plan offers this option. Reviewing your allocations is also wise. Ensure your future contributions are well-diversified to match your long-term goals. New contributions can be an opportunity to add additional diversity.
Contribute to a Roth IRA
If you’re eligible, consider making a Roth IRA contribution during a market dip. This might amplify the power of tax-free growth, which can significantly benefit your financial future.
Explore a Roth IRA Conversion
Converting traditional IRA assets to a Roth IRA during a market downturn can be a strategic choice. It allows you to pay taxes on a lower balance today, setting the stage for tax-free growth down the road.
Note: Roth conversions may have tax implications. It's essential to coordinate with your qualified tax professional before taking any action.
Reassess Your Broader Financial Strategy
Volatile times are ideal for revisiting your entire financial strategy. Check that your emergency fund, asset allocation, and broader plans are strong enough to weather market shifts. Staying patient is vital; remember that short-term storms don’t define long-term success.
Keep the Faith: You're Not Alone
Please reach out if you’d like to delve into any of these strategies. If you have concerns, it’s vital to discuss them. You're not navigating this market alone. While this might feel like a different kind of volatility, history often reassures us. What follows can support the confidence that your long-term strategy remains intact.
Final Thoughts on Long-Term Investing
Stocks are represented by the Standard & Poor's 500 (S&P 500) Composite Index, which is an unmanaged index considered representative of the overall U.S. stock market. Index performance does not indicate past performance of any individual investment. Individuals cannot invest directly in an index. Remember, the returns and principal values of stock prices fluctuate as market conditions shift. Shares, when sold, may be worth more or less than their original cost.
Diversification and asset allocation are strategies to help manage investment risk. However, these strategies do not guarantee against investment losses.
Once you reach age 73, you must start taking required minimum distributions (RMDs) from your 401(k) or other defined contribution plans in most circumstances. Withdrawals from your 401(k) are taxed as ordinary income. If taken before age 59½, they might also incur a 10% federal income tax penalty.
Similarly, with a traditional IRA or SEP-IRA, RMDs must begin at age 73 in most cases. Like 401(k) withdrawals, distributions from traditional IRAs are taxed as ordinary income and may incur penalties if withdrawn early.
On the other hand, contributions to a Roth IRA can be phased out for taxpayers with adjusted gross incomes above a certain threshold. To qualify for tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. No minimum annual withdrawals are required from the original Roth IRA owner.
This article serves informational purposes only and should not replace specific advice. Consult tax, legal, and accounting professionals if considering adjustments to your investments for tax efficiency. Some or all parts of this blog was generated with artificial intelligence.
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Advisory services are offered through Mountain High Wealth Management LLC, a DBA of Forefront Advisor Network.
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