6 financial actions to take in times of uncertainty

6 financial actions to take in times of uncertainty

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investments

01 August 2022

4 minutes of reading

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Disclosures:
Bhatia, Braunscheidel, and Mandell report no relevant financial disclosures.

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During a volatile market environment like the one we’re experiencing today or the sharp market pullback at the start of the pandemic in 2020, many investors, including doctors, feel a powerful urge to act in response.

When markets drop sharply, there is a common temptation to sell stocks in an effort to reduce risk. While selling stocks creates a sense of control that can make people feel better in the moment, it’s often exactly the right thing to do during a market downturn.

OT0622Mandell_Graphic_01
Source: Sanjeev Bhatia, MD; David B. Mandell, JD, MBA; and Adam Braunscheidel, CFP

For doctors who are long-term investors, trying to time the highs and lows of the market is foolish. The evidence overwhelmingly shows that most investors decrease their long-term returns when they try to time the stock market. Investors are more likely to chase the market up and down and get double-hit by their stocks, buying high and selling low. Market timing, while tempting, involves making two near-impossible decisions correctly: when to sell and when to return to the market.

Even when following advice to stay invested during a market downturn, an investor should not passively stand on the sidelines and do nothing.

Stay invested, stay disciplined

In suggesting actions to take when markets fall, many professional advisors focus on what investors can control and don’t let investors get distracted by what they can’t control. With this theme in mind, consider the following six actions.

Sanjeev Bhatia

Sanjeev Bhatia

Keep a long-term perspective. One of the important benefits of working with an experienced advisor is that they can help you manage your financial situation in a holistic way, allowing you to stay disciplined and aligned with your long-term investment strategies. This is true for both your existing investments and any new investments you plan to make over time. Bounces can happen quickly and the cost of missing them is significant. Recognizing this, many advisors will try to help their clients stay invested and do so at a reasonable allocation level.

A long-term approach can also lead to the opportunity to add stocks prudently and incrementally when their prices become more attractive and their expected future returns better. With this strategy, you can potentially take advantage of a volatile market environment by adding investments at prices that can generate much better long-term returns than were possible before the market downturn. By maintaining a long-term perspective, investors can participate in market recoveries and keep their portfolios on track to achieve their long-term financial goals.

Confirm an emergency fund

Confirm an adequate “emergency fund”. One of the best strategies to help you sleep at night, even during market volatility, is to ensure that the funds you need to spend in the near future are not at the mercy of short-term market movements . Advisors often work with clients to ensure they have an adequate amount of cash or low-volatility investments set aside to fund spending needs or use as an emergency fund, keeping that money stable when the near future

David B. Mandell

David B. Mandell

Adam Braunscheidel

Adam Braunscheidel

Review financial planning and/or cash flow projections. By reviewing how your resources will support current and future cash flow needs, an advisor can ensure your spending levels are sustainable or make suggestions for reducing short-term expenses. Reviewing scenarios of how the future might play out can be helpful in creating the right context for making decisions today.

Opportunities to harvest tax losses

Use market downturns as an opportunity to harvest tax losses. A drop in prices is not what we expect when we invest. However, one way to “make lemonade out of lemons” is to sell securities below their purchase price. By “harvesting” these realized losses, they can be used to offset taxable realized gains. This tax-saving strategy can be useful today and possibly in the future, as realized capital losses can be carried forward on your tax return. As losses are harvested, the proceeds from these sales are used to purchase investments in a similar category, so the portfolio allocation and opportunity for upside remains intact.

Consider a Roth IRA conversion. Roth IRA conversions provide an opportunity to transition investments from a traditional tax-deferred IRA account to a Roth IRA, where the investments will benefit from tax-free growth and access in the future. The conversion will be taxable, but a market downturn could be a good time to make this transition with assets that have fallen in price, since their subsequent growth, when the market recovers, will be in the Roth IRA tax-free.

Take breaks from the 24/7 news cycle. Many doctors would do well to take time away from financial means. The ubiquitous news feed focuses on getting attention, it benefits advertisers, not investors. It can be overwhelming for the typical news consumer, which can lead to unnecessary stress and anxiety. It is important to stay healthy both physically and mentally so that you can make the best decisions for your overall benefit.

Emotional decisions

Market falls are never pleasant. For many physicians, seeing values ​​plummet can lead to an emotional decision to “do something,” which all too often results in a desire to sell assets.

Focusing on positive actions can help avoid the dangers of trying to time the market. In this article, we outlined six actions to take during a market downturn that can positively impact long-term wealth planning.

Reference:

Wealth Planning for the Modern Physician and Wealth Management Made Simple are available for free in print or as an e-book download by texting HEALIO at 844-418-1212 or at www.ojmbookstore.com. Enter code HEALIO at checkout.

For more information:

Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon practicing at Northwestern Medicine in Warrenville, Illinois. He can be reached at sanjeevbhatia1@gmail.com or @DrBhatiaOrtho.

David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group www.ojmgroup.com, where Adam Braunscheidel is a wealth advisor. You should seek professional tax and legal advice before implementing any strategy described herein. They can be reached at mandell@ojmgroup.com or 877-656-4362.

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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!