Five Opportunities in a Financial Crisis

Most people know intellectually that bear markets (20% decline in stock prices) are a temporary phenomenon, but they still feel lousy. One thing that makes these declines feel much better is taking advantage of corresponding opportunities. Here is a list of five opportunities that become more compelling during a financial crisis:

1)  ROTH IRA conversions – Many people prefer ROTH IRAs to traditional IRAs because of the tax-free growth and there are no RMDs (Required Minimum Distributions) during the owner’s lifetime. Converting a traditional IRA to a ROTH (by paying the tax now) becomes more compelling in a significant stock market decline for two reasons:

    • You may be able to convert while prices are low, and the inevitable rebound will occur in the ROTH account where all gains and subsequent withdrawals will be tax-free.
    • Often people have lower income during a financial crisis, which means the tax rate on the conversion may be lower. Also, keep in mind that tax-rates are scheduled to increase in 2025 (although it could happen sooner) as explained in this article: ROTH Conversions: More attractive under new tax law.

2)  Refinance mortgages to take advantage of historically low interest rates – There are very few things you can do to put more money in your pocket each month than refinance a home loan in the right situation. Current mortgage rates are now at an all-time low as of 3/11/2020 – 3.43% on a 30-year fixed rate mortgage or 2.9% on a 15-year. For more on this topic, read: Should You Refinance Your Mortgage?

3)  Switch to a more aggressive portfolio model – Some clients asked me last year if they should be investing more aggressively. They often did not need to take more risk to achieve their financial goals, but they simply wanted to capture more upside as the stock market seemed continually to advance. I advised them that stocks were not cheap at the end of 2019, and it was not prudent to get more aggressive when we were already in the longest bull market in history. That has changed now. The bull market has ended, stocks prices are much more reasonable, and the risk/reward trade-off has changed. That is not to say stock prices can’t go lower. They can and very well may over the next several months. However, Warren Buffett said it best: “Be greedy when others are fearful, and fearful when others are greedy.” I think people must be fearful now because they’re stockpiling toilet paper. 🙂

4)  Invest available cash while stocks are on sale – We have been getting lots of calls from clients who want to put more money in the market. A few thoughts here:

    • Make sure you keep an adequate emergency fund of 3-6 months of living expenses, possibly more if your job is not secure or income may be impacted by a recession.
    • Don’t wait for the perfect entry point. It is impossible to time the market. You will have missed the opportunity if you wait until it feels safer to get into the market.
    • We generally recommend dollar-cost averaging new deposits into the market over time in market environments like we are currently experiencing.
    • Be prepared to be patient while you wait for your brilliance to pay off. We expect a strong rebound in stock prices, but that may take months or possibly years.

5)  Tax-Loss Harvesting – Investors can take advantage of the capital losses for tax-purposes if the investment is held in an after-tax account (i.e., not an IRA or 401k). This means selling investments while they are down. Keep in mind that you cannot realize the loss on your tax return if you buy the investment back within 31 days. I would generally recommend you buy a similar (but not the same) investment immediately because it is risky to be out of the market for 31 days. Surevest handles tax-loss harvesting automatically for clients.

Final Thought: One of the few things more important than making money is your health. Many people are concerned about the Covid-19 Coronavirus. We want you to know we are here for you and your investments are in good hands. So, just focus on staying healthy. This soon will pass.

Reach out to me: or your Surevest Financial advisor if you have any questions or just want to talk.


DISCLOSURE: This article is for informational purposes only and not meant as specific financial, investment or tax advice. Speak with your financial advisor before making any investments or acting on any topics discussed. Surevest Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Surevest Wealth Management and its representatives are properly licensed or exempt from licensure.