Broker Check

How to Take Advantage of Market Downturns

| April 29, 2022
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A major part of investing is ebbs and flows in the market and in the last few years, we have experienced many of these market shifts first-hand. While market downturns can be scary and potentially have a negative impact on your invested assets the stock market will rebound at some point, therefore when the market begins to go down, it doesn’t always mean you should get out.

Here are some investing strategies that may be beneficial to you during market downturns.

  1. Roth Conversions

Timing can be critical with Roth IRA conversions. When you convert to a Roth IRA, the converted IRA balance is treated as if it were a distribution and is taxed at your federal income tax rate. Depending on your asset allocation, when the market is down your tax liability for a Roth conversion will likely be lower. Then, once the market recovers your assets will reap the benefits of the Roth IRA’s tax-free growth and distributions.

  1. Increase your contributions

When you buy while the market is down you will get to take advantage of the stock market rebounds in the future. This can be even more valuable if your employer matches contributions. While this may seem strange to spend more when the market is down, it can have a large impact in the future, especially for younger investors.

  1. Gifting

If you had been considering gifting property, now is a good time to consider doing so. During market downturns assets have lower values creating a smaller tax liability in the event that your gift exceeds the annual gift tax exclusion ($16,000 per person in 2022). This strategy may allow you to gift more property to your loved ones.

  1. Rebalance your portfolio

An important part of investing is having a balanced portfolio and diversified investments to mitigate the risks of investing. A market downturn is a good time to invest more into the stock market in order to reap the benefits of the market rebound if you are willing to take on a riskier portfolio. It can also be a good time to transfer your assets to lower risk investments if you are more focused on maintaining wealth than growing wealth.

  1. Tax loss harvesting

Tax loss harvesting is a strategy used to reduce your tax burden for the year. This is done by selling your investments at a loss and writing that loss off on your taxes. Tax loss harvesting is often used to help offset any realized gains you had on other investments throughout the year. In addition, these losses can be carried on for future use.

While market downturns certainly are not ideal there are still smart investment moves you can make that may have rewards when the market improves. It is important to consider all the factors when make these decisions as well such as age, asset allocation, risk tolerance, and proximity to retirement because these strategies will not provide equal benefits to all investors. If you are searching for ways to take advantage of the market while it is down, these may be some good options to look into and measure what the costs and benefits may be for you.   


Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct.

While we are familiar with tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

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