Financial Tips in a bear market

Three Strategies for Bear Markets

Whether markets are up or down, there is almost always something you can be doing to strengthen your finances.

The following planning strategies work by far the best when markets are down.

Make 529 College Savings Contributions

Do you have kids or grandkids that will be going to college?  If so, down markets are a great time to contribute to 529 plans.  The reason?  Contributions to 529s are made with after-tax money, but gains in the plans are not taxed if used for qualified educational expenses.  Historically, market returns coming out of bear markets are better than average.

Escape Opportunity for Mutual Fund Tax Hostages

“Mutual fund tax hostages” own mutual funds in their taxable accounts that they would like to sell, but don’t because of the capital gains taxes they would owe. Thus, they are stuck owning the funds, paying fees and being subject to dreaded annual capital gains distributions.  Market downturns provide great opportunities to escape such funds with a lower capital gains tax bill and to replace them with more tax-efficient alternatives, such as exchange-traded funds (ETFs) or portfolios of individual securities.

Consider a Roth Conversion

A Roth IRA conversion is done by transferring (“converting”) your IRA assets into your Roth IRA, where gains and distributions are not taxable.  You do owe taxes in the current year on the amount of the Roth conversion, however.  Now, let’s say that the bear market has reduced your IRA from $100,000 to $80,000 this year.  If you do a Roth conversion now, you will owe tax on $80,000, not $100,000, and the money will be in a more tax-efficient home (your Roth) when markets recover. 

Develop a Comprehensive Financial Strategy

Strategies like those described above are not appropriate in all circumstances and should be considered only in the context of a broader financial plan. 

Please contact us if there is anything you would like to discuss about your investments or the markets. You can call us at 619-319-0520, email Peter Thoms, or schedule a call with us below.

*Image: ©AlexSuloev from Getty Images via Canva.com

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Peter Thoms, CFA, MBA

Peter Thoms, CFA, founded Orion Capital Management LLC in April 2002. Peter has extensive experience managing investment portfolios for clients pursuing a wide range of financial goals.

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