Trying Times with a Silver Lining


Sheryl Rowling CPA/PFS, Principal of Rowling & Associates

As the coronavirus continues to spread, its effect on the market, and the world, is becoming more and more noticeable. News of increased cases, travel restrictions, and Stay at Home orders dominate the headlines. When our newsfeeds are constantly bombarded by these negative stories, it can be hard to find the bright side — but that doesn’t mean it doesn’t exist! Though these are certainly trying times, there is a silver lining to the coronavirus chaos.

Ways to Keep Your Portfolio Strong

Prior to the spike in coronavirus cases in the past few months, the U.S. stock market was in the midst of a nine-year period of expansion. With so many years of positive returns fresh in our minds, many people reacted with panic as the market began to suddenly drop. What you may not know is that a down market actually presents some good opportunities for potential tax benefits, as well as a chance to evaluate the success of your portfolio, if you don’t let your emotions run the show.

The one thing you should not do in the midst of a volatile market is duck out! Though staying the course may seem counterintuitive given our current situation, this is actually the best strategy to ensure that you won’t miss out on the market’s eventual recovery. You might be thinking to yourself, “But surely it makes sense to get out now, rather than continue to accumulate losses?” This is just your emotions talking! Getting out of the market actually locks in your losses, and studies have shown that being out on a big recovery day can do more damage than just riding it out. Keep in mind that, so far at least, the market’s situation is less of a plunge and more like a bungee jump. Some days, it is down, others it has bounced back up. Pulling out of the market in a panic means you’ll miss out on the opportunity for positive returns on the “up” days – and other additional benefits as well.

One of the best strategies you can take advantage of during a market as volatile as the one we are experiencing now is tax loss harvesting. Actively harvesting tax losses means that you sell loss positions to capture tax benefits and simultaneously replace those positions with a similar investment. So, when the market eventually bounces back, you will be able to begin your recovery process quickly — with a host of tax benefits locked in as well!

Another way to keep your portfolio strong in a volatile market is to take advantage of rebalancing. When prices drop in one segment of the market, rebalancing pushes us to buy more — essentially taking advantage of bargains.

A downturn like we are experiencing right now also offers an opportunity to evaluate the success of your portfolio. For example, if you are invested in a diversified mix of stocks and bonds, your risk of loss is minimized because if one position performs poorly over a certain time period, others may perform well which will ultimately reduce the overall potential for loss. Diversification is also a smart idea because it means you are not relying solely on one source for income. As we are seeing during this current crisis, some industries are being negatively affected, while others, such as companies that are working to create vaccines or provide materials to prevent the spread of disease, are doing quite well.

Additional Financial Changes

In addition to its impact on the market and portfolios, the coronavirus pandemic has led to several other changes that could actually benefit you financially. One of these is the waiving of interest on student loan payments. While this won’t lower the amount of your monthly payment now, it could allow you to save more over the total lifetime of your loan — or even pay your loan off faster. If you are in a position to do so, you may want to consider making higher payments to your student loan during this time. If you are currently experiencing financial difficulty as a result of the pandemic, you do have the option to defer your loan payments for up to 60 days with no penalties. You can contact your loan servicer to request this deferment.

Many other institutions such as phone providers, credit card providers, and banks are suspending payments as well. With so many fees being waived and so many businesses temporarily closed, now could be a good time to reevaluate your spending and focus on building up your savings. Or, if your finances allow it, you can increase your charitable donations, leading to the possibility of more deductions on your 2020 tax return.

New Tax Laws

The escalating coronavirus situation has also resulted in changes to the tax laws. Most notably, the date to file for 2019 has been moved from April 15, 2020 to July 15, 2020. The date to pay has also been moved to July 15, 2020.

The changes to these dates have led to adjustments to other rules as well. You now have until July 15 to contribute to an IRA or Health Savings Account. Although no other changes have been confirmed at this time, it is possible that adjustments could be made to the rules for Required Minimum Distributions as well. As new rules are unveiled every day, it is incredibly important to be aware so that you can take advantage of any potential benefits coming out of this difficult situation.

Final Thoughts

There is no denying that we are living in the midst of some truly trying times, and there is no way to know when these circumstances will change or what the long-term effects of this pandemic will be. That said, the news is not all bad! There are ways to turn the negative aspects of this situation to your advantage. Contact our firm today if you would like a review of your investments and a recommendation for a strategy to maximize potential tax benefits during this period of market volatility.



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