Take Advantage of “Assets on Sale”

If you have extra cash on the sidelines that you don’t need within the next 12 months, now is a great time to buy stocks at lower prices. By purchasing more shares during a downturn, you’ll have more exposure when the market rebounds. This can help you recover faster, as you’ll own more shares on the way up than you did when the market was down.

If additional cash isn’t available but you still want to take advantage of the market dip, consider adjusting your allocation to a higher equity position, as long as it aligns with your risk tolerance.

Use Tax Loss Harvesting to Your Advantage

If you’re holding funds with losses but have an alternative that’s similar, you can swap out the underperforming asset for one that mirrors it. For example, if you hold the Vanguard S&P 500 Index and you’re down $20K, you could sell it, take the loss, and buy a similar fund, like the Schwab S&P 500 Index. This strategy allows you to bank the tax loss while still maintaining similar exposure to the market. The loss can offset future taxable gains and reduce your tax burden.

Keep Cash Reserves for Short-Term Needs

It’s important to have 12 months of “grocery money” set aside to cover immediate expenses. This buffer will help you avoid having to sell investments when the market is down, reducing stress. Having cash reserves allows you to be strategic about when and how to replenish them. If you’re feeling anxious about market volatility, you can either withdraw extra cash as a cushion or shift your allocation to more conservative investments. However, this approach should be discussed with your advisor to ensure it matches your risk tolerance.

Review Your Financial Plan and Assumptions

Reviewing your financial plan with your advisor can provide reassurance. Market losses have already been incorporated into your plan, and you can adjust key assumptions like inflation, spending, and returns to see how they affect your long-term outcomes. At Evensky & Katz / Foldes, we already model bad timing scenarios into our plans. These stress tests simulate two consecutive years of poor returns based on your portfolio’s allocation. Keep in mind that your portfolio likely won’t mirror the broad equity market unless you are fully invested in stocks. Bad timing often shows a larger hit when you start drawing down assets for retirement. Fortunately, we also plan for longer-than-average life expectancies, which helps provide some cushion.

Temporarily Reduce Discretionary Spending

If you’re still feeling uneasy, you can temporarily cut back on large purchases like a new car, vacation, or home renovations. We can also model the effects of reduced spending for a few years until the market recovers. Small changes in spending can make a significant difference during downturns, and psychologically, it often feels right to reduce discretionary spending when the outlook is uncertain. Once the market rebounds, you can revisit those purchases.

Trust in Long-Term Growth

At Evensky & Katz / Foldes, we’ve been working with clients for nearly 40 years, and we’ve planned for market volatility. While we can’t predict exactly when volatility will end or what the future holds, faith in capitalism and the global economy’s long-term growth has served us and our clients well. Remember, this too shall pass.

Connect with us to discuss your financial strategy and ensure your portfolio is prepared for whatever the market brings.