5 Questions To Ask Your Wealth Advisor in Volatile Markets

When markets move up and down, even experienced investors can feel uncertain and fearful about what could happen next. That’s why it’s important to remember that markets can be unpredictable in the short term. Stock market volatility is a normal part of investing.

However, you can feel more assured by working with an advisor who can help you prepare your portfolio to weather downturns when they hit. When market uncertainty hits, ask your financial advisor these five questions:

1. Should I rebalance my portfolio?

Abrupt market movements can push your portfolio away from the target allocations that you set. Market dips can be great times to improve your portfolio. You can do this by balancing your asset classes.

Rebalancing your portfolio can help it recover faster. It is possible to sell winning assets and buy those that have fallen. . The strategy has the potential to work, but it’s important to consider the impact of trading costs and tax consequences. Rebalancing can feel uncomfortable, but your advisor will work with you to determine if it’s mathematically advantageous even if it’s emotionally difficult.

2. Are there Roth conversion opportunities?

Historically, IRAs have been popular choice for estate planning.  Under today’s tax rules, however, inherited IRAs have become a tax bomb. However, many people can take advantage of down markets to shift more of these assets to a Roth IRA and pre-pay the taxes due.

This can be a great idea if you were already planning to do conversions and were prepared to take a small hit in the conversion. Now that hit is reduced.

Another option for those over 70 ½ is to take a qualified charitable distribution (QCD). If you’re planning to donate to charity, doing so from an inherited IRA is a way to meet the required distributions on such accounts. But if the funds go to charity, the distribution does not count as income. Your advisor can help you figure out a strategy that aligns with both your goals and your tax brackets.

3. Should I leverage tax-loss harvesting?

During volatile markets, proactive tax-loss harvesting is one of the best ways to make lemonade out of lemons. Tax-loss harvesting involves selling securities at a loss – so that you can use the loss to offset the tax obligation from gains – while buying a security with similar characteristics in its place. When your new holdings recover you still notch those gains, but now you’ve also booked a tax loss that you can use against future gains.

Investors must be careful to abide by the IRS’s wash-sale rule which can be triggered if a replacement security is too similar to the one that was sold. Your wealth advisor can help make sure you’re working within a capital gains budget and implementing tax-loss harvesting in accordance with IRS rules.

4. Do I have excess cash to invest?

If an investor has excess cash that they are looking to invest, a downdraft in the market may present an opportunity. The same amount of money now buys more shares. While it feels great to invest in a market at all-time highs, it often feels difficult to invest in a down market. But when we look back with hindsight, it’s generally moments like now where you wish you’d invested more.

The flip side of it being a relatively good time to buy stocks is that it’s likely a relatively poor time to sell stocks. Reducing withdrawal rates or spending during periods of downturn has shown to be remarkable in aiding in recovery.

5. Should I accelerate dollar-cost averaging plans?

If you’re accumulating in your portfolios, you may already be taking advantage of dollar-cost averaging, where you invest a fixed sum at regular intervals. When the market is relatively expensive, you’re buying fewer shares, and when the market is relatively cheaper (like now), you’re buying relatively more shares.

Over time, dollar-cost averaging is a strategy that aims to buy more shares at lower prices and fewer shares when the market is high. If you have the cash flow, talk to your wealth advisor about whether now might be a good time to accelerate your dollar-cost averaging to take advantage.

Have the conversation

Even if you’re confident in your financial plan, a moment of volatility gives you a lot to talk about. Don’t hesitate to reach out to your advisor if you want to discuss these – or any other – topics. If you’re not a Mercer Advisors client but are interested in learning more, let’s talk.

Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

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