This show marks week three of COVID-19 for our country. These are the times that test us most. On this show Jason and Alex remind listeners that humanity has persevered through many very difficult forms of adversity and we will persevere through this, too. Our ability to do so relies on our resolve to control the things that we can while accepting what we can not. The show focuses on correlating this concept to investing. Jason and Alex start with what we did before COVID. Build a comprehensive financial plan that determined an investment strategy that matches your personal plan. This financial plan and investment strategy would then take into consideration the probability of success of weathering all past major market events and preparing for more of them to come. Now that a major market event has hit, this investment strategy needs to be managed in a way to control what we can. The show provides a few examples of strategies that we can do right now.
-Strategy one is don’t bet on luck and don’t panic. If you built your portfolio as described earlier, then the investments that you own will recover, and they will recover at different times and different speeds. Selling to cash or attempting to time the market is not a strategy that has proven to yield long term success. Don’t chase sectors or stocks because that too has very low odds of success and relies on luck.
-Strategy two is a Roth conversion. Depending on your circumstances this might make more sense than ever right now. The conversion will trigger taxation this year, but at a lower value than before. The recovery and appreciation will then take place inside of the Roth IRA, which is tax free forever (provided you follow all IRS guidelines).
-Strategy three is to actively rebalance your portfolio with tolerance band logic in place. This results in selling high and buying low across asset classes throughout this volatility and all the while bringing your portfolio back to your initial desired allocation. By following a process rather than emotions or luck, this strategy has proven to deliver results over time in both good markets and bad ones.
-Strategy four is tax loss harvesting. This strategy works in non-retirement accounts only and works by selling a position when it’s down intentionally and locking in a loss. Unlink market timing, you then immediately buy another position that is similar, but not substantially the same, maintaining the initial asset allocation. The investment strategy is thus intact, and the tax loss is locked in allowing you to offset other gains throughout the year. We do not know what is to come and we never will. We do know that the markets will continue to be predictive in nature, moving faster than feels logical and might make us feel helpless at times. We do have control over some things and should strive to focus our time and energy there. We are an amazing species and will persevere through this and come out even stronger than we were before.
In this show you will learn about:
- Why you shouldn’t bet on luck right now
- How a Roth conversion might make more sense than ever right now
- How implementing the process of tolerance band rebalancing will guide you through even the most challenging of market times
- The benefits of Tax Loss Harvesting