Episode 8: Certified Financial Planner Jeb Jarrell discusses dealing with volatility. As an investment advisor, a turbulent economy can be challenging, but generally speaking, there are steps you can take to limit the impact of that turbulence. Let’s listen to Jeb as he explains how.
The economy has been very volatile during the last several months. The question is how do you best deal with it, and possibly even take advantage of it?
Have a Plan
This is a core to any long-term investment strategy. If you have time before you plan to retire, there’s no reason to panic. Timing the market is extremely difficult. You have to know when to get out and then when to get back in. Most people don’t execute this well.
If you know why you’re investing, it can help you to mentally prepare yourself. At the same time, it enables you to diversify your portfolio. Risk and volatility can also be a positive factor, if you’re properly positioned.
Having a plan enables you to deal with a market pull-back. This is a cyclical occurrence. You may not need to get nervous if you’ve taken advantage of a comprehensive, investment strategy.
Tax Loss Harvesting
This process is often something people assume you do at the end of the year, but Jeb explains that’s not necessarily true. Tax loss harvesting enables you to sell some of your weaker performing stocks (even at a loss) to offset gains in other areas of your portfolio.
In non-qualified accounts (i.e. brokerage accounts), you’re taxed on the realized gain at the time you sell the stock. You can take advantage of losses to mitigate the tax liability. This enables you to remain in the market and potentially leverage the recovery in price per share of the stocks you kept.
The current tax laws allow you to take up to a $3,000 investment loss against your general income, even outside of your investments. So, in a volatile market when you may not have significant gains, you can still benefit from tax loss harvesting.
Roth Conversions
Jeb discussed Roth conversions in a video available on his website and on Jeb’s YouTube channel. A Roth conversion takes pre-tax money from a traditional IRA and places the funds in a Roth, tax-free growth IRA. You’ll have to pay the taxes as part of the conversion, but you’ll now be able to leverage the tax-free growth.
When the market gets volatile, if you convert funds and they grow even just to the level prior to your paying the taxes, you still get the advantage of tax-free growth. This is extremely important if you have a lower income year. You may be in a lower tax bracket, so taking advantage of the conversion might make even better sense.
At the end of the day, you should sit down with a qualified, investment advisor who can help you to think through your investment strategies. A good advisor will bring a solid perspective, but also know how to develop and implement your strategy.
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If you’d like more information about Jeb Jarrell and his firm, visit Jeb’s website at PlentifulWealth.com. You can also follow him on Facebook.
Thanks for listening!