Personal Finance

‘With Volatility Typically Comes Opportunity.' These Are the Smart Moves Advisors Are Telling Clients to Consider Now

Sean Gladwell | Moment | Getty Images
  • Escalating tensions between Russia and Ukraine continued to send stocks lower on Wednesday.
  • Financial advisors say the downturn is a good opportunity to put available cash to work in your retirement accounts.
  • Investors may also want to consider tax-efficient investment strategies and rebalancing. "We're advising clients to take action," one advisor said.

Escalating tensions between Russia and Ukraine sent stock markets lower once again on Wednesday.

Many individual investors are feeling the recent market declines triggered by geopolitical risks personally, particularly when it comes to their retirement account balances.

Financial advisors say this could actually be an opportunity to put any cash you have available to work toward your long-term goals rather than sitting on the sidelines.

The S&P 500 Index fell deeper into correction territory Wednesday, while the Dow Jones Industrial Average and Nasdaq Composite indices also suffered losses.

For many investors, the contraction in equity markets dating back to the start of the year may feel unfamiliar after the muted volatility we have had, said Vance Barse, wealth strategist and founder of Your Dedicated Fiduciary, with offices in San Diego and Prosper, Texas.

Barse said he is urging clients to take a proactive approach to see how they can take advantage of current market conditions.

"With volatility typically comes opportunity, and we're advising clients to take action," Barse said.

'Now is a good time to invest'

On Tuesday, Barse advised one client who has yet to fund his 2021 Simplified Employee Pension individual retirement account (SEP IRA) contribution to do that now. SEP IRAs are tax-deferred retirement savings accounts for small businesses and self-employed workers.

Retirement savers have until April 15 this year to fund their IRAs for last year.

Now is also a good time to get a jump on 2022 retirement contributions, including IRAs as well as 401(k) accounts, Barse said.

"If you have continued volatility, and stocks and/or bonds continue to sell off, then we might have the opportunity to deploy that cash into the portfolio, where valuations might be lower than where they are now," Barse said.

Barse's clients largely include retirees, C-suite executives and real estate owners.

But the strategy also works for investors who are just starting out.

Certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said she had her 25-year-old daughter fully fund her Roth IRA account over the weekend.

The geopolitical turmoil served as a learning opportunity for her daughter, a gig economy worker who is experiencing the first downturn of her professional career.

While her initial retirement investment soared around 38% two years ago, she was disappointed to see it in the red now.

"The best thing for you to do is not panic," Cheng said she told her daughter. Cheng also said that if someone is in a good position, now is a good time to invest.

Tax-saving opportunities

Investors may also want to consider Roth conversions, Barse said, which involves transferring retirement assets from traditional IRA or other pre-tax retirement account to post-tax Roth IRA. The transfer will create a tax liability now, which could be reduced in a down market.

By doing a Roth conversion now, that can also free up cash to deploy in that account in the near future, Barse said. If market volatility continues, that could present an opportunity to deploy the cash at lower valuations.

For non-retirement portfolios, now could be a good time to take advantage of tax-loss harvesting strategies that were not available at the end of 2021 when stocks were higher, Barse said.

Tax-loss harvesting enables investors to sell investments at a loss and replace them with other securities. This can help reduce the taxes paid on investment gains or other taxable income. Importantly, investors would need to hold off on buying the same or similar securities within 30 days before or after the sale, so as not to run afoul of IRS wash sale rules and trigger penalties.

To be sure, it's best to enlist the help of a tax professional or financial advisor to verify specific strategy works for you and is executed properly.

Keep rebalancing

Market volatility presents an opportunity to reassess your overall situation and whether your investments are working for you, said Diahann Lassus, a CFP and managing principal at Peapack Private Wealth Management in New Providence, New Jersey.

Now is a good time to ask yourself whether your investments are positioned properly for the long-term and whether they're acting like you would expect them to amid current volatility, she said.

"There is still an opportunity to continue to rebalance and make sure you pay attention to what is happening with your investments," Lassus said.

Some 401(k) plans may offer automatic rebalancing features, which can help make sure your portfolio doesn't get too misaligned, Cheng said. Opting in may come with fees, but can give you peace of mind that your portfolio is getting rebalanced once every quarter or every year, for example.

"Ask if it's available, because that can also be helpful," Cheng said.

Copyright CNBC
Contact Us