6 Financial Moves to Make When the Market Goes Down
Smart investors know how to profit whether markets are hot or cold. Even though stocks are riding high right now, keep these strategies in your back pocket for any down times that may be ahead.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
Even the best investors can’t always predict market downturns — who are we kidding, no one can! If you have significant invested assets, market declines can jeopardize your hard-earned wealth. While the stock market usually rebounds in time, market downturns can be especially scary for individuals.
That said, a market downturn doesn’t mean you should get out of the stock market as fast as you can. On the contrary, bear markets are an excellent opportunity to flex specific financial muscles.
Younger investors could actually benefit from increasing investments during market downturns as the added capital could improve their long-term prospects. Other financial moves to consider include rebalancing your portfolio, converting funds to your Roth IRA, and conducting tax loss harvesting.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sure, markets have been on a record-setting run lately, but that won’t go on forever. So, it’s good to be prepared with a gameplan to prosper in the bad times as well as the good.
Key Takeaways
- While market downturns are an unwelcome development for many investors, there are still smart financial decisions you can make to help weather the storm.
- Different strategies may be available to you depending on your age, asset allocation and proximity to retirement.
- Investing strategies during market downturns include rebalancing your portfolio, converting your traditional IRA to a Roth, and adjusting your gifting plans.
Before you continue reading, grab this free workflow: What Issues Should I Consider When Reviewing My Investments?
How to Take Advantage of Market Declines
Here are some investing strategies to keep in mind during market downturns.
1. Increase Your Contributions
While it may seem counterintuitive to increase your retirement savings when the market is down, it can be a worthwhile strategy, especially for younger investors. By buying when the market is down, investors can take advantage of stock market rebounds in the future. Boosting contributions is an incredibly valuable strategy if you’re able to score a matching contribution from your employer since you’ll be able to take advantage of double the growth.
2. Rebalance Your Portfolio
Market downturns are also a good time to rebalance your portfolio. If you’re nearing retirement, you might want to transfer more of your assets to risk-averse investments, such as bonds and CDs. On the other hand, young investors might want to take advantage of the downturn by investing more heavily in the stock market. It’s always a good idea to have a balanced portfolio with a mix of assets to diversify your investments and mitigate risk.
3. Roth Conversions
Roth IRA conversions are a great way to transfer money from a traditional taxable IRA to a tax-free Roth IRA. However, when you complete this conversion under normal market conditions, you’re typically on the hook for a significant amount of taxes on your investments.
You can save money on a Roth conversion by completing it during a market downturn. Because the value of your investments is lower during a decline in the market, you’ll pay a smaller amount of taxes when you make the conversion. It’s also a good strategy if your income is lower than it usually is in a given year.
Depending on your 401(k)/403(b) plan rules, you may be able to complete this same strategy inside of your qualified plan(s) as well.
4. Tax Loss Harvesting
Tax loss harvesting is the process of selling investments at a loss to write them off on your taxes. If you’re interested in reducing your tax burden for the year, capital loss harvesting is a strategy worth considering.
Tax loss harvesting only works with investments where you’ve experienced a loss. While you can buy back investments after selling them, you must wait at least 31 days to avoid violating the wash sale rule.
5. Gifting
Suppose you plan on gifting assets to friends or family members. In that case, you may want to consider giving during a market downturn — when assets have lower values — if you believe that the property will appreciate in the future. Strategically planning your giving allows you to shift more property at lower values to loved ones like children and grandchildren.
6. Make Sure Your Goals are on Track
Tired of stressing over the red dots in your portfolio? Shift your attention elsewhere. Market downturns present an opportunity to check in on your goals. Depending on your particular situation, your investment portfolio’s goals, time horizon and objectives may need to be reviewed, updated or documented. Tracking your goals is especially important if you’re nearing retirement or have a significant expense on the horizon you plan to use your investments to cover, like tuition for your kid’s school.
Take Advantage of Investment Opportunities in Any Market Condition
Frustrating as it may be, market downturns are an inevitable part of investing. While they can be a little nerve-wracking at times, it’s important to remember that, on average, your investments will likely still experience growth over time.
It’s essential to capitalize on critical investment opportunities, whether you’re riding the highs of a bull market or treading water in a bear market.
-
Ask the Tax Editor: Federal Income Tax DeductionsAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on federal income tax deductions
-
States With No-Fault Car Insurance Laws (and How No-Fault Car Insurance Works)A breakdown of the confusing rules around no-fault car insurance in every state where it exists.
-
7 Frugal Habits to Keep Even When You're RichSome frugal habits are worth it, no matter what tax bracket you're in.
-
For the 2% Club, the Guardrails Approach and the 4% Rule Do Not Work: Here's What Works InsteadFor retirees with a pension, traditional withdrawal rules could be too restrictive. You need a tailored income plan that is much more flexible and realistic.
-
Retiring Next Year? Now Is the Time to Start Designing What Your Retirement Will Look LikeThis is when you should be shifting your focus from growing your portfolio to designing an income and tax strategy that aligns your resources with your purpose.
-
I'm a Financial Planner: This Layered Approach for Your Retirement Money Can Help Lower Your StressTo be confident about retirement, consider building a safety net by dividing assets into distinct layers and establishing a regular review process. Here's how.
-
The 4 Estate Planning Documents Every High-Net-Worth Family Needs (Not Just a Will)The key to successful estate planning for HNW families isn't just drafting these four documents, but ensuring they're current and immediately accessible.
-
Love and Legacy: What Couples Rarely Talk About (But Should)Couples who talk openly about finances, including estate planning, are more likely to head into retirement joyfully. How can you get the conversation going?
-
How to Get the Fair Value for Your Shares When You Are in the Minority Vote on a Sale of Substantially All Corporate AssetsWhen a sale of substantially all corporate assets is approved by majority vote, shareholders on the losing side of the vote should understand their rights.
-
How to Add a Pet Trust to Your Estate Plan: Don't Leave Your Best Friend to ChanceAdding a pet trust to your estate plan can ensure your pets are properly looked after when you're no longer able to care for them. This is how to go about it.
-
Want to Avoid Leaving Chaos in Your Wake? Don't Leave Behind an Outdated Estate PlanAn outdated or incomplete estate plan could cause confusion for those handling your affairs at a difficult time. This guide highlights what to update and when.
