The start of the year has brought a ton of changes: a new administration, layoffs, tariffs, market volatility, and so much more. We’ve experienced a market pullback this year, and many of our clients have asked how they can respond to the current environment. We’ve compiled a helpful list of what you can do and what we at Bloom are doing on your behalf.
What you can do:
- Make your IRA and retirement plan contributions now: Why wait until the end of the year when you can make these contributions at a tradable low? If your cash flow allows, consider fronting your yearly contributions.
- Consider investing your cash: We do not know the future and we will never be able to pinpoint the exact market bottom, but consider the current market pullback as an attractive entry point for long-term investors. If you have been holding onto cash waiting to get in, what are you waiting for now? Consider investing your cash monthly over a period of time, potentially enhancing future returns when the market eventually recovers, we call this, dollar-cost averaging.
- Review your expenses and cash flow to make tweaks:Getting a handle of your expenses is more important than ever during market pullbacks. It’s a lot easier to draw from your portfolio for that kitchen remodel when the market is up, not so easy when the market is down. Consider what expenses you can delay for better years in the market while also understanding what expenses you require regardless of what is going on in the market (healthcare, insurance, college, etc.). Now is the time to make sure you have a solid emergency fund and enough liquidity on hand.
- Consider getting more aggressive with your asset allocation strategy: If you have a long-term time horizon and the proper temperament to handle the volatile markets, take a look at your current allocation and consider if you can withstand more risk.
- Review gifting strategies:There are some gifting strategies that make more sense when the market is down, like gifting appreciated stock and funding trusts such as Grantor Retained Annuity Trusts (GRATs), Charitable Lead Annuity Trusts (CLATs), and Intentionally Defective Grantor Trusts (IDGTs). Additionally, annual gifting of up to $19,000 per recipient allows you to transfer wealth tax-free while potentially reducing your overall estate tax liability. Also review the impact of declining markets on an estate if in probate and distributing assets.
- Do absolutely nothing: Sometimes during market pullbacks, the best thing to do is nothing. Continue to ride the waves of the market, invest consistently and often as usual, and lean on us for guidance and support. Remember, don’t let your emotions lead your investment decisions. Market volatility is normal, even though it can feel scary.
What Bloom Wealth Advisors Does for You:
- Look for Roth conversion opportunities: For some of our clients, Roth conversions are a key part of our tax strategy, and market pullbacks offer an opportunity to convert more at lower prices. Roth conversions can have many benefits if they fit into your situation, and we keep tabs on all our clients to understand who would benefit from a Roth conversion. During market pullbacks, we don’t wait until the fourth quarter for Roth conversions.
- Rebalance client portfolios: Last fall, we proactively rebalanced most of our clients’ portfolios based off of the two good years we had in 2023 and 2024. We are now continuing to make adjustments to our client portfolios based on current market conditions. For example, we have increased our international exposure, added TIPS, an inflation protection investment, as well as continuing to bring down some of the risk for some of our clients. What you need to know is we are actively managing your portfolios and are ready to respond when needed.
- Tax loss harvesting: With pullbacks across the market and within the technology sector especially, we look through our clients’ portfolios for tax planning opportunities like tax loss harvesting. Especially for clients who have large, overconcentrated, appreciated stock, we will look for losses in the portfolio to offset these gains.
- We are here to offer you support and guidance: Since the beginning of the year, we have had many conversations and meetings with clients concerned about the current landscape. If you feel uneasy, we want to hear from you. As your financial partner, we know you are coming to us for your market and economic news, and we strive to provide you with an accurate, approachable take on the current environment.
We are here to support you and provide guidance and advice during these times. We want you to know that volatility and uncertainty do not make us change our long-term investment discipline. We are with you for the long-term and are honored to be your financial partner. Please reach out to us if you need more support.
Warmly,
Alana Macy, CFP®, MBA
Partner, Wealth Advisor
Converting from a traditional IRA to a Roth IRA is a taxable event. This piece is not intended to provide specific legal, tax or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
