5 Ways to Take Advantage of a Bear Market

5 Ways to Take Advantage of a Bear Market

July 27, 2022

When the stock market is on a downward trend, it can be difficult to know what to do with your money. Should you sell your stocks and wait for the market to rebound? Or should you hold on and hope that the market will start to go up again soon? While nobody can predict the future with complete accuracy, there are some ways you may be able to take advantage of the current down markets to improve your position for the future. Here we discuss five of them. 

  1. Tax-Loss Harvesting

This is a tax strategy that involves selling investments at a loss in order to offset capital gains taxes. For example, let's say you have a stock that has increased in value by $10,000 over the course of the year. If you sell that stock, you will be subject to capital gains taxes on the $10,000. However, if you also have a stock that has lost value by $5,000 during the same period, you can sell the losing investment and offset some of the taxes on the gain. In this way, tax-loss harvesting can help to minimize your tax liability. While it may seem counterintuitive to sell investments that are losing money, tax-loss harvesting can be a smart strategy during a down market. By selling losing investments and reinvesting the proceeds in similar but higher-performing assets, you can take advantage of market conditions and improve your long-term returns. 

  1. Invest Excess Cash

When the stock market is down, it can be tempting to pull your money out of investments. However, if you have excess cash available, this may be the ideal time to invest. History has shown that investing during a downturn can lead to substantial gains in the long run. Of course, there is always risk involved in any investment, but by diversifying your portfolio and taking a long-term view, you can minimize your exposure to risk while positioning yourself for future success.  

  1. Roth Conversion

Many people choose to invest in a traditional IRA or 401k account in order to save for retirement. These accounts offer tax benefits, allowing people to deduct their contributions from their taxable income. However, the money in these accounts is taxed when it is withdrawn during retirement. For this reason, some people choose to convert their traditional IRA or 401K account to a Roth account. With a Roth account, contributions are not deductible, but withdrawals are not taxed. This can be beneficial if the value of the assets in the account has decreased. When the market is down, the value of these assets is usually lower than it would be during an up market. As a result, converting to a Roth account while the market is down can minimize the taxes that will be owed on withdrawals. 

  1. Roth for Kids

A down market can be a great time to buy assets that will appreciate over the long term. That's why setting up a Roth IRA for kids during a period of market weakness might be one of the best moves you make. With a Roth IRA, your child can invest in stocks, bonds, and other securities at attractively low prices. Over time, these assets will likely rebound in value, providing your child with a nice nest egg for the future. 

  1. Wealth-Transfer Trust

Estate planning is a complex and often sensitive topic, but it's important to have a plan in place to ensure that your loved ones are taken care of in the event of your death. One way to do this is to transfer assets to them while values are depressed. This has the dual benefit of protecting the assets from creditors and spendthrift heirs, as well as ensuring that the appreciation on the assets will go to your loved ones instead of being subject to estate taxes. Of course, this is just one piece of the puzzle when it comes to estate planning, and you should consult with a professional to ensure that all your bases are covered. But if you're concerned about estate taxes, transferring assets while values are depressed can be a smart move. 

At Triada Advisors, we have helped family business owners, retirees, and wealth builders achieve total financial wellness for over 20 years. We understand the anxiety and stress that often accompanies a bear market, but through disciplined financial planning and comprehensive investment management, we provide the expertise and guidance you need to stay the course and remain focused on your long-term goals. Get in touch with us today to review your financial picture!