CommentaryJanuary 2019 Commentary

In a Down Market, Look for Planning Opportunities

For the first time in years, we are ending the year with a down market.  We’ve been a little spoiled, and it’s certainly natural to be pessimistic when things turn down.  In our opinion, a down market is not always a bad thing.  It can be simply the yang to the yin- a different set of circumstances that can give us the opportunity to look for planning techniques that aren’t as potentially fruitful in higher markets.  These are a few of the things we look for with our clients as the markets get a little choppier:

Investing Opportunities:

This can sound obvious in an up market to lay people.  Everyone loves to invest when the market seems to be on a never-ending ride up.  But in our experience, the only people who like to invest in a down market are those who have seen it go down dramatically and rebound with significant assets in their lifetime.  Those investors often ask us if it is time to put more in at the slightest sign of a market decrease.  However, investors who have not lived through this before tend to be more skittish about investing when markets are low and uncertain.  We would argue, it’s always uncertain to invest- it’s just our feelings that change.

Dividend Reinvestment Policy Changes:

Down markets can be a great time to review what you are doing with your dividend strategies.  If you are not reinvesting and cash is accumulating in your investment account beyond what you need for current or future planning, this can be an excellent time to review and change that strategy to a reinvestment plan.  Small changes like these can potentially make a difference for you long term.

Roth IRA Conversions:

Converting IRAs to Roth IRAs in lower markets mean you may be able to transfer more shares across what we refer to as the “tax fence” for the same amount of tax that you would pay in a higher market environment.  The growth on these shares going forward will be free of future tax, could reduce your Required Minimum Distributions after 70 ½ and potentially be more liquid to you after 5 years of holding.  These are complex tax situations, and need to be considered with your tax advisor, but they can be attractive- especially if you have a long-term holding period or are planning inheritances for your children someday.

Tax Loss Harvesting:

Down markets can provide for losses that can offset gains of other assets.  Depending on what you are holding and what movement you would like to make between positions you hold, this can be your chance to do it.  A bond fund that has a loss can be sold and a similar bond fund can be purchased, creating a loss (it can NOT be the same fund, however).  This allows a loss that could offset a gain for a higher asset that is not as affected by the market that you want to sell.  Again, this is complex and you need your advisor involved- but it is something to review as you look at your portfolio in this market.

Making Portfolios More Aggressive:

Clients newer to investing sometimes invest in ways that are more conservative than they need to be to get used to investing.  There is nothing wrong with that, in our opinion, as it gives people experience at the pace that they are able to stick to.  But after a while, investors tend to get a better education if they are actively participating. They may decide to get more aggressive.  A down market can be that opportunity, as stocks may be down more than bonds and cash.

Gifting to Non-Charities:

It’s great to donate appreciated equities to charities when markets are up.  You can transfer fewer shares for the same deduction as a down market.  But if your goal is to donate shares to your children so they can cash them in at their (lower) tax bracket, a down market is a better time to do that.  The transfer of those shares can happen now, and the gift value is the day you transferred them.  But your kid can hold on to the shares until they want to cash them in- they don’t have to do it now.  When and if the shares rebound, the gain is paid at their (hopefully lower) tax rate than yours.  Don’t attempt this without professional advice either, or you can get yourself into a mess.

All of these strategies can be looked at with fresh eyes in a down market if you are looking for opportunities and controlling your emotions.  But a word of caution- waiting around for a down market to invest and plan is a silly thing to do.  A long enough time horizon suggests that every investment could be a low value compared to the potential value of an investment 10, 20 or 30 years into the future.


“Price is what you pay, value is what you get.” -Warren Buffett
The Planned Approach, Inc.

420 W. 98th Street
Kansas City, MO 64114
(816) 941-0098

Our Disclosures/CRS FORM
The Planned Approach, Inc.

420 W. 98th Street
Kansas City, MO 64114
(816) 941-0098

Our Important Disclosures

Insights for Your Life Stage

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