2020-03-12 Coronavirus (Roth) Conversions and Other Opportunities

The S&P 500 has officially entered a bear market and investors all over social media are panicking. Because they don’t have a plan.
But you do.

We’ve put in the work and developed a plan and portfolio that’s unique to you and your goals, so that during times like this, you’re prepared.

Quite frankly, as I’ve been reviewing client portfolios, it’s hard not to be excited at how client portfolios are doing during this downturn and the opportunities we can begin taking advantage of to further improve your financial position.  Here are just a few:
  1. I’ve recommended many clients complete Roth conversions to take advantage of gap years and the tax-arbitrage opportunity created by the Tax Cuts and Jobs Act.  With the market down, we’ll be updating tax projections, and I’ll be reaching out to take advantage of the 20%+ tax savings that has been created by the current correction.
  2. Given the great returns of the last decade, client portfolios have significant embedded gains.  The correction provides an opportunity to offset some of those gains by realizing temporary losses in beaten down stocks and sectors, such as energy or travel.  This improves your after-tax portfolio returns and reduces your total tax liability.
  3. The 10 year treasury hit an all-time low of 0.54% this week and mortgage rates have generally followed. With this sudden drop in interest rates, it may be a good time to look into a mortgage refinance.  While rates may go lower, finding a no-fee 30 year mortgage under 3.5% shouldn’t be too difficult.  Not paying any fees will allow you to refinance again if rates go even lower.  The only difficulty is that mortgage lenders have been completely overwhelmed by the demand for mortgage refinances, and many have been increasing spreads and, in some cases, not answering their phones.
  4. Over the past decade investors have been conditioned to “by the dip” and many investors did so last week, just as our models were telling us to reduce portfolio risk.  Continued losses have created even greater opportunities and while there is still a risk that “this time will be different” and the current dip will turn into a recession, our models will signal when there is an adequate margin-of safety, and I will begin taking advantage of value opportunities created by beaten down stocks. So, if you’ve been thinking about increasing your recurring monthly savings amount, now is a great time to do that.  Similarly, if you’ve found that you have more sitting in checking and savings accounts than you need and could make an additional deposit to your investment portfolio, let me know.
I hope this is helpful, but if you have any questions about your individual portfolio and financial plan or how to best take advantage of these opportunities, I’m here to help.  Please don’t hesitate to send me an email or give me a call at 317-537-PLAN.
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