E28: How to take advantage of a bear market

Executive Summary

What to do when the stock market just flat stinks.

I know the feeling…You log into your account, hold your breath, and see that the account value has slipped even more. It has been months of seeing scary headlines and watching the value of your portfolio, EVERYTHING you have worked for, just slipping further and further in the wrong direction. You are starting to think that this will never turn around. I mean it has been over half a year of destruction and maybe just getting out would be better than having to watch it fall even more.

If you have had this experience, you are not alone! It is quite a common reaction from investors when the market falls more than 20% and slips into a “Bear market.”  Since 1928 investors have had this internal battle with themselves 26 times, or once every 3.5 years or so.

How you handle these moments in the market can have profound impacts on how successful you will be as an investor. Making the wrong move at the wrong time can set you on a path of realizing the losses and regret. The big problem? Your emotions always advise you to make the wrong decision when it can hurt you the most. So…what do the best investors do when the market slips into freefall and the future looks bleak? They find the opportunities and take advantage of them!

Controlling Your Emotions and Understand the Fundamentals.

 The first thing you need to do is be able to control your emotions, or work with someone who is not emotionally attached to your money. The market goes up and the market goes down, it is just how it is, and your emotions want to keep riding the wave when it is going up and it makes you want to jump overboard when it goes down. The issue for investors is it is almost impossible to tell when it will go up or go down, so we need to focus on what we do know; over the long run it goes up. Trying to time the market will almost always lead to locking in losses and missing the recoveries.

Half of the strongest days in the past 20 years of the S&P 500 have happened during a bear market. If you let your emotions win and you bail when the market falls, you miss those gains forever and prolong your asset’s recovery. While there have been 26 bear markets since 1928, there have also been 27 (much longer) bull markets.

Always remember that every single bear market up to this point HAS recovered. Be wary of your emotions and understand that the market is a tool that moves money from the impatient to the patient…you do not want to be the former.

Look for Opportunities.

 If you have some cash on the sideline, these market dips are enormous opportunities for you. Being able to invest in the market when it is down 20%-30% has proven to be a fantastic way to generate wealth. However, do not fall into the emotional trap and try to time the bottom, you likely will not get it right. Instead take a step back and see things 5-6 years down the road. Investing when the market is down 25% will still be an extremely attractive entry point, even if it falls to 30% in the short term, and it will always be better than if the market were to rally before you were able to invest.

If you do want to mitigate some of the risk of getting money into the market, you could use a dollar cost averaging strategy. This is when you select a percentage of your money to invest and get it in the market over regular intervals. Maybe you put 20% of your money in the market every month for the next 5 months. This will protect you from having the market fall right after you put all your money in, and it will give you the ability to invest a larger percentage if the market does tumble to cheaper valuations.

Roth Conversions and other Investment Strategies.

If you are already in the market, this is a good time to take advantage of some tax loss harvesting and other tax strategies like a Roth Conversion. The idea here is that if your IRA falls a significant amount through the market turmoil, you can take some of that IRA (pay your taxes on it) and convert it into a Roth IRA. This way, when the rally does inevitably happen, all your gains will be tax free. See, bear markets can be fun too!

Additionally, spend some time rebalancing your portfolio. Right now, the equity portion of your portfolio is probably getting smaller and smaller. That means if you were in a 60/40 portfolio (60% stock and 40% bond), you may be closer to a 40/60 portfolio today. If that is not what your investing strategy is planning, you are going to want to make sure to rebalance and get your percentages back on the right track. Keeping your correct stock exposure will help the portfolio recover faster when the market starts its climb back up.

Do not stop investing.

 “Should I stop my 401k or IRA contributions while the market is going down?” This is a common response from investors when their emotions start rearing their head. The answer is simply, no! For the same reason that getting money into the market at lower valuations makes sense for those sitting in cash, continuing to contribute through downturns allows you to keep buying into the market for cheap and will aid a larger recovery for your portfolio. If you have the means to continue contributing it can be the best thing you do through these periods.

Closing Thoughts.

 I honestly believe one of the most valuable things I can do for a client is help them through down markets. Just being able to help them avoid the mistakes that most people make when the market just stinks can make all the difference. However, I get it. I am human too and no one likes to see the value of their account fall. We just need to go back to the fundamentals, look at how these things have played out historically and have a clear mind when opportunities do arise.

I will leave you with these quotes from one of the most successful investors of our time, Warren Buffett.

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.”

  • Warren Buffett 2016

“The sillier the market’s behavior, the greater the opportunity for the businesslike investor.”

  • Warren Buffett 2003

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

  • Warren Buffett 2008

 

DISCLAIMER: The foregoing content reflects the opinions of Penobscot Financial Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. 


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Full Transcript

Tyler Hafford:

Welcome to Financial Discretion Advised. I’m Tyler Hafford. Bringing back a fan favorite, Craig Joncas, one of the managing partners here at PFA for our discussion today. Craig, how you doing?

Craig Joncas:

I’m doing good. Tyler. How you doing?

Tyler Hafford:

Good. We were just talking about the last time you were on, you broke the recording software.

Craig Joncas:

I know. I’m hoping for better results today.

Tyler Hafford:

Going to try to get through this in one take. But I want to bring Craig on today. Market obviously been slumping, and unlike golf handicap, just keeps to continuing to go a little bit lower. And we want to have a podcast on what should we be doing? How do we take advantage of market downturns like this, because there is a silver lining in everything. And in the market right now I think there are some opportunities folks can be taking advantage of.

Tyler Hafford:

Where are things at? Let’s talk about the market right now in general. We’ve entered this bear market. You’ve been in the industry a few times, you’ve seen a couple of bear markets along the way. What are you seeing from client sentiment right now? Are we hitting a point where people are getting just uncomfortable with what’s going on?

Craig Joncas:

Yeah, absolutely. We sent out a client letter a couple weeks ago, because we get to these places where you just know your clients are feeling the anxiety. The market has been not only down, but lingering that way for a while.

Craig Joncas:

We seem to have a couple of little recoveries where you think maybe we’re getting to the other side of this thing, but the reality is, we’re six months in. And that’s actually one of the longer down markets that I’ve experienced in a while. We’ve been really spoiled and fortunate that a lot of our down markets have been pretty quick. Some of our clients don’t even notice them sometimes if they’re not watching closely enough.

Tyler Hafford:

Right. And a sharp contrast to what we saw in 2020. We saw this big drawdown market. I think got down to lows of 40% or something like that. And then really quick recovery, a lot of that sped up by the Fed just pumping money into the system.

Tyler Hafford:

But I think behaviorally, much easier for investors to digest that when six months later you’re back to normal valuations and you’re moving higher. Like you said, trudging along. It feels like every week we have just some bad news that sends us a little bit further.

Craig Joncas:

Yeah. And that pandemic was unique.

Tyler Hafford:

Right.

Craig Joncas:

We had never experienced it before, but I think we have a lot of people right now that have experienced inflation. They’ve been through the ’70s and ’80s and they know what this looks and feels like. And it hurts their wallet every day, in addition to their investments. So this one, I think, just has some heightened fear around it, for sure.

Tyler Hafford:

Yeah. And I’m going to take this for a quick plug, and I know I bring this up in a lot of podcasts, and I know you work with [inaudible 00:02:49] clients because we work on it with all our clients here at PFA, is figure out your risk tolerance and your risk capacity. Your risk tolerance, again, your ability to stomach this type of volatility. Your risk capacity, your plan’s ability to withstand if the market’s going up or down. When we look at building out financial plans for folks, we want to build a plan where they don’t have to care what’s going on in the market so their risk capacity can handle this type of stuff. I really think it’s important for investors to pay attention to that.

Tyler Hafford:

But let’s say, all right, market’s down in bear market territory. How can we take advantage of this? Someone sitting in cash today, got extra cash on the sidelines. What are we doing? What do you think our strategy should be there?

Craig Joncas:

Yeah, good question. I think a couple of potential strategies that come out of that. One more opportunistic than the other, one a little bit more risk managed, but I’ll talk about it first. I think it’s appropriate to look at this and say, “This is a really good discount to stock prices. I’m a long-term investor and I’d like to enter this market here.” And I’ve been talking with clients lately, that would be my approach. I think the market’s down 20, 23%. Different parts of the market are down 30, 35%. There are some good buys out there.

Craig Joncas:

If we fast forward the clock to three, four or five years from now, I think we look backwards on this and say, “I got in there. That was a really good place.” I’m not one to get too greedy about finding the absolute bottom. I like to deal with known quantities. Here we are down. I’d be willing to take that discount and just start piling money into the market.

Tyler Hafford:

Yeah, yeah. I think that’s extremely spot on. If we look at the market and we put it on the wall away from us and we stood 15 feet away, we’re going to see that nice trend up. If we stand one or two feet away we’re going to see a lot of choppiness.

Tyler Hafford:

And this is one of those moments where we may have more down. You may get some money in there, the market slides a little bit further. But if we are looking on that long-term trend, if we are long-term investors, I really think these entry points are going to look really good down the road, like you mentioned.

Craig Joncas:

Agreed.

Tyler Hafford:

So getting some money in, I think it’s important. For folks that are a little bit more risk adverse, let’s say they don’t want to get all their cash in, what kind of strategy can we use to start taking bites of the apple?

Craig Joncas:

Yeah. Yeah, and this is my more common conversation right now, is taking bites of that apple. And that’s what we call a dollar-cost averaging plan at the end of the day, or DCA plan. Committing to the market’s down, let’s get a little bit of our cash in the market. And then let’s set up a routine, systematic schedule of buying over the coming months. For a lot of our clients I think I’ve been doing that over a six to 12 month timeline, depending on the risk tolerance of the investor.

Craig Joncas:

This is a really good tool. I think what people need to remember is all it is is a risk management tool. All it does is diversify your entry points so that not all of your money is going in at one buying point. It’s not because we’re predicting the market and we’re saying there’s going to be lower points to buy, we don’t know. The DCA might work. The market might continue downward and we get lower entry points. The market might come back up, in which case we should have just put all our money in at once. But this is a risk management tool spreading out your buying, not being [inaudible 00:06:17] to the day you’re buying.

Tyler Hafford:

Right. And like you said, risk management, you could put all your money in the market today. If it goes up 10%, you got in, all your money benefited from that 10%.

Craig Joncas:

Right.

Tyler Hafford:

But this plan is giving you some protection that you put your money in and it doesn’t drop 10% and you lose 10% of value immediately. It is giving you a bit of a risk management of getting into the market.

Tyler Hafford:

I also think that it gives you a lot of flexibility. You may come up with a strategy where you say, “We’re going to do 10% over the next 10 months of getting our cash in the market.” But let’s say something really changes and the market takes a plunge of 20%. Well, now you have some cash on the sidelines where you say, “I really like this entry point now, we’re down 40%. Why don’t we get a little bit more in right now and take advantage of more and more of those dips?” I do like the flexibility that that plan gives you, it doesn’t necessarily have to be as rigid if you set it up [inaudible 00:07:16].

Craig Joncas:

Yeah, that routine schedule. I actually just did that this week with a client and he had a really good term for it, he called it the rip cord. And I love that.

Tyler Hafford:

That is good.

Craig Joncas:

Now I’m going to start calling it the rip cord with people. If you just get to that certain bottom, it just looks like too good of an opportunity to be true. Pull that rip cord and we can put it all in then. Yeah.

Tyler Hafford:

Yeah. It’s funny, this is the only industry where when things go on sale, people run out of the store screaming. Being ready to take advantage of those opportunities I think is good. And if you have cash on the sidelines, these are certainly the opportunities you want to take advantage of.

Craig Joncas:

Definitely.

Tyler Hafford:

Let’s say we’re in our investments. We don’t have cash on the sidelines. What should we be doing to mitigate or pay attention to volatility, to best set us up for long-term success?

Craig Joncas:

Yeah. I think one of the routine things that should be happening in your portfolio at this time is some rebalancing. Rebalancing is an important part of investing, no matter the market that you are in.

Craig Joncas:

But especially when things are volatile, it can be a little bit opportunistic in your portfolio if equities have lost value that come off smaller portion of your portfolio. You do some rebalancing, you pick up some more equities at cheaper prices. So when we do come out of this thing, which will happen, we’ll come out of it and be better on the other side because of asset allocations and tax.

Tyler Hafford:

Yeah. Yeah, I think that’s a really big one for investors, because we see it a lot, especially when folks who aren’t working with the money, someone managing the money, where their equity position takes this huge hit as stock slide. We see the recovery, and what used to be a 60/40 portfolio is really now a 40/60 portfolio because the equity position is so low. And they have a slower recovery because they’re not really lined up with what they thought they had for risk [inaudible 00:09:06].

Craig Joncas:

Exactly.

Tyler Hafford:

Yeah, so really important. So we’re rebalancing, but there are some types of investments we can be making that do well in these types of environments, or at least give us a little bit of a hedge against the stock market sliding.

Craig Joncas:

Yeah, absolutely. These are types of investments that I think you’ve got to have a watchful eye on and pay attention. They’re not quite as set it and forget it, but I think considering alternative assets in the portfolio right now makes a lot of sense. We’ve had an over-allocation to alternatives since early in the year, it’s treated us pretty well. Those are things like a commodities basket. So having some participation in inflation, and having that benefit you rather than suffer from the effects of it can be really valuable.

Craig Joncas:

And there are assets that add diversification to a portfolio, so they act a little differently than your traditional stocks and bonds. Considering allocation there makes a lot of sense, but some of those we need to know too, if we slip into a recession, they might turn the other direction and not act you so well in the portfolio. They do require some monitoring, but I think can provide some defensive strategies for people.

Tyler Hafford:

Yeah. And Sam and I have done a couple podcasts on alternatives, so if anyone wants more information on this, go back and listen to why we think it’s important. I think, moving forward, it’s always going to be important to have some type of alternative sleeve to your portfolio. I think, like you said, some things are going to benefit really well right now, but may not if we slip into recessionary times or if inflation comes backwards or rates come down at some point. All of those things could change what type of alternatives you’re holding. But I think having some of your money invested in alternatives is extremely important.

Tyler Hafford:

You can also look at defensive sectors, things that do well if you think we’re stepping into a recession. And there are a lot of boxes being checked to say that the risk for recession is increasing. Are we in it right now, are we going to be in one soon? Time will tell, but making sure you’re invested in the right places during those periods of time can be important. So things like utilities can do well during a recession, people are going to pay to keep their lights on.

Craig Joncas:

Right. Healthcare.

Tyler Hafford:

Healthcare can be a good one. On the flip side of that, a lot of your growth companies are probably going to be the losers through that period of time. There’s not going to be a lot of capital expenditure. Those companies that are built on the promise of future earnings don’t look all that good when recession’s happening.

Tyler Hafford:

Certainly taking a look at your investments. And there’s another thing going on right now that people can take advantage of, but we shouldn’t sell out of the market to take advantage of this, and it’s actual raising interest rates. Well, it’s going to make borrowing money a lot more expensive. There are some advantages for folks on the savings side.

Craig Joncas:

Yeah, absolutely. For the first time in a long time we’re seeing some pretty good interest rates for people who are depositors and just don’t have an appetite for stocks.

Tyler Hafford:

Yeah.

Craig Joncas:

We saw very, very briefly in 2018, the Fed was going through a rising rate policy then for a short period of time. And we saw some decent interest rates, but it was short-lived, maybe like three months. And here we are in this environment where rates are going up and we’re pretty sure the Fed’s going to continue to increase their benchmark rate for a while.

Craig Joncas:

Yeah, there are some good interest rates out there. Whether it’s a bank CD or a fixed annuity, as long as you’re not getting sold something with a lot of features that you’re paying for, we can find things out there right now earning 4% guaranteed, no risk, with some liquidity along the way. So yeah, for those who aren’t willing to get into the market, that could be a good option too. But definitely not a good option to be taking losses and running something like that.

Tyler Hafford:

Right, yeah. You don’t want to sell out of a stock portfolio that’s down 15, 20% right now and buy something or put it in something that’s going to make you 3% or 4%.

Craig Joncas:

Right. Take you four or five years just to get back to where you were. Then with inflation along the way, you’ve still lost purchasing power.

Tyler Hafford:

Yeah, yeah. You’re way down. And actually gets into the next topic I want to talk about, is a lot of folks are looking at the market right now saying, “I turned on CNBC, everything is losing money. Everything is losing money. Why would I even want to get involved in this? It’s all doom and gloom right. You keep telling me there’s going to be recovery, Craig. I don’t know if there’s going to be recovery.”

Tyler Hafford:

There are some fundamentals that the market has shown us over time on how these things behave. Now every bear market tends to be a little different, but the outcome is always the same. We always recover and has, and every time we’ve had a crash. But what are some of these fundamentals that we should be paying attention to? To just remind us that getting money into the market’s a good idea, especially in the long-term.

Craig Joncas:

Yeah. I think you nailed number one right off the bat, which is track record. The stock market has a 100% track record of recovering from economic turmoil and recessions in bear markets. Number one, just keep that in mind. But then some of the fundamentals, I think even if this is a recession, if we look at average recession level losses, I think those typically circle around the 30% mark. Not too long ago our market was down just about 25%, that’s within 5% of an average recession’s low point. That’s why I look at that in the purview of what a good opportunity. Yes, some recessions are worse. Some are also not quite so bad, but that’s a good measuring stick for where we were.

Craig Joncas:

And also timeline of that bear market too. I think most bear markets are about an 18-month cycle when we go into recession. We’re already six months into this one. I think we can use those just as some guideposts along the way.

Tyler Hafford:

Yeah, some reminders. And I know, I like looking at those statistics. When we talk recession ’08 just comes to mind, that’s emotionally attached to a lot of folks. That was a really tough recession and a lot of people got hurt through that, so that’s what we go to. ’08 is kind of the exception to the rule, that was unusually long. It was unusually deep. Not necessarily what we normally see in a bear market. So while it does look like doom and gloom, I think if we look at ’08 as being the exception, not the rule, we start to line up with this is what a bear market looks like. And this is typical levels of what we hit and come out of it.

Tyler Hafford:

I think there’s another big thing here where time in the market is always going to be timing market. You’re never going to find the bottoms, you’re never going to know the tops. And understanding that the market is a leading indicator. So the market right now is trying to price in what it thinks is going to happen in the economy. It thinks, all right, there’s a good chance we might step in a recession. It’s trying to price that correctly. And then when we’re coming out of it, it’s trying to price, this is what the recovery’s going to look like.

Tyler Hafford:

The reason why it’s so difficult to time that is, if you’re making decisions in real time on your investments and the market’s looking six, eight, 10 months out, you’re behind the curb. You’re not going to get it right. So everyone who gets into a recession decides they want to get more conservative, they start selling out of stocks, they start doing that. The end of the recession is actually the best time to be getting into stocks.

Craig Joncas:

Exactly.

Tyler Hafford:

Because then we ride it back up.

Craig Joncas:

When you’re turning on the news every day and everything is bleak, when you can barely find a reason for why you’d ever want to be a stock investor, that is going to be the time that you want your money in and that we’re going to turn the corner. Our market will be recovering while everything in the real world will still feel bad.

Tyler Hafford:

Exactly.

Craig Joncas:

Yep, absolutely.

Tyler Hafford:

Yep. And we’re seeing that right now, right, Craig? Everything in the real world doesn’t … I mean, inflation’s high but we’re still seeing job growth. We’re seeing wage growth. We’re seeing healthy savings levels of Americans. It’s probably getting a little cracked right now as we’re doing this. But everything doesn’t seem like doom and gloom in the real world, market makes it seem like it’s significantly worse.

Craig Joncas:

Exactly. And we’re just starting to see a little bit of turnover in some of those indicators, and that just shows you the predictive power of the markets. The market started this six months ago, and we’re just starting to see the signs of it in the real economy today. And it’ll be the same on the other side.

Tyler Hafford:

Yep. I think remembering those fundamentals, getting the money in the market if you’re a long-term investor is always going to be the best play.

Craig Joncas:

Yep.

Tyler Hafford:

Because over time we’ve known that the market just goes up, there’s just going to be a lot of bouncing around. But along with those fundamentals we need to tackle this emotionally, because it is our money. We take a look at it.

Tyler Hafford:

Craig and I help folks manage their money. We can take an objective view of it, but we’re human too. I mean, I don’t like checking my bank account or my accounts when the market’s doing what it’s doing, but I have to emotionally handle that. And certainly in our jobs we help people emotionally handle that, but do we have some ideas or tips for folks to navigate these waters?

Craig Joncas:

Yeah. And everyone is a little different emotionally too, so people are going to have different emotional strategies for dealing it with it. One that might sound like a bad idea but I think is a really good idea, is just stop obsessing over checking it every day.

Tyler Hafford:

Yeah.

Craig Joncas:

Turn the news off. Stop watching things. Don’t check your account balance every single day. Take a break from it all and just go about living your life, enjoy the things that you have and that are in front of you. Be present don’t worry about what’s going on.

Craig Joncas:

I think when things are good it’s a lot easier for people to do that, but it should be the same through the downside. These are things that change and value every day. And by the very nature that they create fear. And you can remove a little bit of that fear by just not obsessing over it.

Tyler Hafford:

Yeah. And I like to think a bit like your house value. You own these assets, they go up and down in value. Your house has a value. If you lost 10% tomorrow in your home, one, you probably wouldn’t even know it.

Craig Joncas:

Exactly.

Tyler Hafford:

And two, if you weren’t selling tomorrow you probably wouldn’t care. Buying a home in the United States has proved me one of the largest wealth builders that anyone can do, and over time that asset will benefit you down the road. Same thing here. If the account loses 10% of the value, the problem is we can log in every day and put a number value to it, and that emotionally causes a reaction into us. The house value, not necessarily the same. Like I said, you probably wouldn’t even know.

Tyler Hafford:

I like your idea of just set it away for a second. Put it down, walk away. We know over the long term this is going to be the best place for your money. And just let it do its thing, because if you just obsess every single day you’re going to make a bad decision at the wrong time. And that’s when they do.

Tyler Hafford:

And like you said, capitulation is the word that you keep hearing in the news. But what essentially what that is they want a point where everyone’s looking at the stock market and the last thing you want to do is buy stocks. That’s the moment they’re looking for. And emotionally, that’s what you have to overcome when you’re looking at your account every day, is you’re going to hit that point where you’re going to say, “I just don’t want to see this go down anymore.” And you make a bad decision at the wrong time.

Craig Joncas:

Yeah, absolutely. Other people too, just to share another one, I think need a little bit more coaching or evidence to get over their emotions. I’d say also, if you’ve got an advisor, or even if you have a family member or a friend that can serve as somebody to just bounce your anxiety off of, do that. Pick up the phone and call.

Craig Joncas:

Right now we’re encouraging conversations with our clients because we can look at their financial plan, remind them that we have simulated events like this, and that their financial plan is still on track, even if events like this occur. And so to be able to talk with somebody, get rid of some of that emotion, show them the evidence of we planned for this and we’re going to be okay, that can help alleviate some of those emotions too.

Tyler Hafford:

Absolutely.

Craig Joncas:

So I encourage everyone to reach out to somebody.

Tyler Hafford:

Yeah, absolutely. To be honest with you, I am a firm believer that I can add the most value to someone in moments like this when I’m working with them. If I can help them just avoid making the bad decision right now, the benefit five, six years down the road is enormous. We talked about that. Yeah, certainly, reach out, talk to folks.

Tyler Hafford:

And I like the planning aspect that you bring up too, because when everything seems like doom and gloom, throwing that planning software out there, seeing that probability of success, seeing that I’m still on track to hit my goals, that can be that silver lining. That light in the dark that gets you through these moments.

Craig Joncas:

Yep.

Tyler Hafford:

All right. I wanted to just wrap up with a few strategy points that folks can take advantage of here while the market is down.

Tyler Hafford:

Let’s start with Roth conversions. I know we’ve done a pod completely on Roth conversions. But what are you looking at here? Why is now a good time to start exploring a Roth conversion?

Craig Joncas:

Yeah. In normal times we do most of our Roth conversions at year-end because we like a lot of the other tax data to be a sure thing for the year. So we do it towards the end of the year, when our conversions can be calculated most efficiently. But in a year like this, where the market drops quite a bit, this is an opportunity for you to take money that has lost value, convert it, and then experience that growth cycle all tax free.

Craig Joncas:

If we can convert while the market’s down, we’re essentially just leveraging a pool of money that used to be bigger into a better tax-free environment. We’re going to experience all that growth tax free. Really good time to be doing it. Even if the calculations can’t be perfect, doing partial Roth conversions or getting close right now is a really good idea.

Tyler Hafford:

Yeah. Really good way to set yourself up for that long-term growth.

Craig Joncas:

Yeah.

Tyler Hafford:

And especially if you’ve wanted to have more tax free assets, you’ve been limited by your contribution limits into the Roth, the market’s giving you an entry point right now.

Craig Joncas:

Exactly.

Tyler Hafford:

So get some that money in there. You also brought up a really interesting one before the podcast, even talking to folks about, and that’s 529 contributions.

Craig Joncas:

Yeah. Again, a tax relocation. I love taking advantage of bear markets and tax-free accounts, because we know historically that our best growth cycles occur after bear markets and recessions so we can get the most tax-free growth. So 529 plans, way to save for college, sock away money tax free. A lot of my clients do routine contributions to those, either systematically or lump sums. And I’ve been just encouraging my clients to step those up and make larger contributions while the market’s down, again, so when growth does become explosive again, we’re getting that all tax-free for a specific purpose.

Craig Joncas:

And there’s a place for. You’ve got to determine a timeframe. You know how old your kid is, you know when they’re going to college if they’re going to college. So if you’ve got a four-year-old at home and you’ve got 14 years, hey, you don’t have to worry about the next two or three. This is a determined timeframe, why not get some money in while we’ve got a good entry point.

Tyler Hafford:

Yeah, I love that. And like you said, in Maine there’s a number of incentives as well to use their plans. There’s a lot of matching grants out there and all that. So yeah, any extra money sitting around, if you know your kid’s going to go to school down the road, you know it’s going to be expensive, a good time to start investing for them.

Tyler Hafford:

And then the last one I have here is just tax-loss harvesting. Right now we’re taking losses in portfolios, it is a good time to offset some future gains by taking on those losses and reallocating. Especially if you haven’t rebalanced in a while, might be a good opportunity to do that. But certainly the market’s given you opportunity to lock some losses.

Craig Joncas:

Yeah. Or if you’ve got a position in your portfolio you haven’t liked for a while, but you’ve been hanging onto us because it’s got big gains and you want the tax hit, maybe take another look at that. Establish asset allocation in a better fashion by getting rid of that position.

Tyler Hafford:

Yeah. I think I want to leave this with just a couple thoughts. One, don’t stop investing during these periods of time. The market is scary, it seems like doom and gloom. We’ve said it in this podcast a number of times, the market has recovered from every single one of these. Don’t stop investing. Right now is the best opportunity you have to get some money in the market. And if it goes lower, then that’s even more of a discount to get your money in. But over the long term it’s going to be a good thing. And that these downturns are measured in months and the up times are measured in years, and that’s why we invest.

Tyler Hafford:

I hate to talk with someone who say, “Well, I just stopped my contributions.” I really think right now it’s the time you want to be making those if you can.

Craig Joncas:

Absolutely.

Tyler Hafford:

Any final thoughts?

Craig Joncas:

No. I think you hit the nail on the head, man. I think everything else we talk about is the nitty-gritty. The most important thing right now is stay disciplined. If you do that right, all these other little things, they amount to much less.

Tyler Hafford:

Yep, awesome. Well, Craig, thanks for coming on today. Anyone has questions or comments or wants to talk to us, our emails are on the website. Also common below, Like, Share. Thanks for listening, guys.

Craig Joncas:

All right.

Speaker 3:

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