Lemonade Anyone?
4 Investor Opportunities in Today’s Market.
By: Allison Schmidt, Financial Advisor, CFP®, CPA
I don’t think anyone would argue that this has been a challenging 22 months. As of the end of October, the S&P 500 was down 12%* since the beginning of the current market pullback on January 1, 2022. The lowest point being this time last year, when the market hit the low at -25% on October 12, 2022*. Market declines are uncomfortable for most investors, but downturns are a natural part of investing. We believe there are opportunities available to investors who are able to stay the course and sift through the noise.
Here are 4 things we are paying attention to in the current environment that could benefit investors over the long run.
1. It’s baacckk…. Interest that is. You can make money on your money again. This is arguably the best thing that has happened for investors over the past 22 months. But where your cash sits does matter. Up until the beginning of this year, most savings accounts paid little to no interest. As of November 7th, according to bankrate.com, available money market accounts paid up to 5.10%, but the national average is still just 0.46%. That means it matters where your cash sits. Take a look at what your cash savings is earning. It may benefit you to find a higher yielding savings account. A little research and no additional risk could earn you thousands more annually. (Cash is important, but an overweight to cash, even at these levels, has its drawbacks, make sure not to get caught in the cash trap.)
2. More bang for your buck. Your cash contributions purchase more shares. For cash that exceeds short-term needs or emergency savings, look to invest it. The market is volatile right now and can make even the most seasoned investors hesitant, but these pullbacks can create opportunities to purchase high quality investments at a lower cost, since the market is down. It can be challenging to know when the right time is, so we encourage investors to utilize a dollar cost averaging approach. This is where you split up your purchase over a set period of time to catch the market as it moves. Historically, it has been beneficial for investors to purchase stocks during market pullbacks, even if we’re not able to pinpoint the exact bottom.*
3. Turn lemons into lemonade. These market environments can create the opportunity to work through investment portfolios to accumulate tax losses in taxable accounts. Think of this as creating a savings account of capital gain tax offsets. You’re able to accumulate these losses and use them against unlimited gains in the future, or up to $3k each year of taxable income. These losses never expire. I like this tax strategy approach so that we have a little more control over your future capital gain tax bill when you need cash or investments need to be rebalanced. A little more on that approach can be found here.
4. “Be greedy when others are fearful.” -Warren Buffett. Look to position your portfolio to take advantage of the next market cycle. As a part of our investment process, we do this methodically as the market moves. As the S&P 500 declines or advances, we either increase or reduce our stock positions across our client portfolios to make sure that we have the appropriate allocation no matter what direction the market moves. We believe it’s important that investors have at least the same amount of stock exposure at the bottom of a pullback as they did at the top to get back to even and ultimately grow more quickly. In a market decline, the only way to ensure your allocation remains appropriate is to tactically manage investments on the way down.
Market declines, while unsettling, can create opportunities. It is important to create a well-thought-out investment strategy that considers cash needs, your long-term goals, and risk tolerance. Each piece is crucial for navigating market downturns successfully. This is why at Higgins & Schmidt Wealth Strategies, we focus first on your goals and what is important to you to create a personalized plan to navigate full market cycles, including these downturns.
*ycharts.com
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
