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Don’t Touch Your Face,
or Your Portfolio

 

These last few weeks have been stressful for many investors. You may be tempted to reduce your investment risk level, or even “get out” altogether, but this could be a big mistake. Ask yourself: is the action I’m about to take based on thoughtful analysis, or is it an emotional reaction? As public health officials have been telling us: don’t touch your face. In the same vein: you should be careful about touching your portfolio. Here are some thoughtful steps you can take:

  1. Make sure your portfolio is properly diversified. You should be appropriately diversified regardless of what is going on in markets. If you’re too conservative, being more aggressive will allow you to benefit more when markets trend up. If you’re too aggressive, being more conservative will reduce your losses if markets trend down.
  2. Re-balance. Even if your portfolio was properly diversified, recent market declines might have caused it to be out of balance. For example, if you started with 60% in equities and 40% in cash and fixed income, you may now have only 50% in equities. This would make your portfolio more conservative than you originally intended.
  3. Consider converting to Roth. If you were thinking of converting any of your retirement accounts into a Roth, now might be a good time. In doing so, you’ll need to pay taxes on any earnings and pre-tax balances, but lower market values could mean less of each. When the market recovers, your money can then grow to be tax-free after 5 years, and once you have reached age 59 1/2.
  4. Harvest tax losses. If you have investments that have lost value in a taxable account, you can sell them and use the losses to offset other taxes. To the extent that your losses exceed any gains, you can use those excess losses to reduce your ordinary income taxes by $3K a year (anything over $3k can be carried forward to future years up to $3K per year).
  5. Revisit your long-term financial plan. Having a comprehensive financial plan can make it easier to stay the course when markets get scary. If you know you are investing that so you will be able to retire in 20 years, a temporary drop in account value is likely easier to ignore. Keep in mind that even for those of you who are currently retired, you don’t need all of your invested dollars today! A substantial portion of your account value may not be needed for 10, 20, or even 30 years from now.

As financial planners, our goal is to help you make choices based on what will help you reach your goals. We employ a rigorous process to help you ensure that the steps above are reviewed regularly so that you can feel more at ease during uncertain times. If you have any questions or concerns, or would like to discuss anything in the newsletter further, please don’t hesitate to call or email us directly.

The Moore Wealth team sends our best from our home offices!

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