3 Financial Planning And Investment Opportunities In A Down Market

Peter, good to see you. Welcome back, everyone. Today, we're going to talk through three financial planning and investment opportunities in a down market.

Thank goodness, Peter, I need some good news. Recently, stocks closed out their worst quarter since 2022. The S&P 500 and the NASDAQ logged their worst performance since Russia's invasion of Ukraine.

So before we talk into the tips, talk through how to, you know, take advantage of this down market. I do want to talk through what we are seeing right now, which is something we have mentioned before, which is the concentration risk in the S&P specifically, where 80 percent of the market's movement is due to only 10 stocks. And to put a finer point on it, when we take a look at the one month performance of the S&P and we see this much red on the board, it's a lot. Of course, it's across the board, but specifically the magnificent seven, which have lost two trillion dollars since the start of the year. I mean, this is scary to look at.

Peter, what do we need to keep in mind? Tech bubble 2.0. I don't know why. I have not heard more discussion of the 1999, 2000 and then 2000 through 2002 tech bubble bursting. That is what we are seeing here again. And if we go back to 1999 through 2002, the market lost about 50 percent. The major market indices lost about 50 percent over that three year period.

However, it was largely due to over concentration in a single sector. And if we had a well balanced portfolio over that same period of time, we would not have lost nearly as much. The problem is that a lot of investors, including mutual fund managers, hedge fund managers, they chase these higher returns and the magnificent seven or 10, if you want to expand it out a little bit. These behemoth companies have represented the majority of the gains that we saw over the last five years. And those same high flyers have come crashing down more significantly than the rest of the broader market.

If you are diversified across different sectors and in different places, not just concentrated in those, you have not felt the same kind of losses that are represented when you see the numbers in the news necessarily. Now, I do want to stress and emphasize that we've put out news for our clients about what is driving this market turbulence and where we think or see or hope that things go. And double check to make sure that plans are balanced and intact for our long term vision.

But we need to keep that long term vision. Investing is looking out five or 10 years into the future, not looking back over the last two to three months as far as what your approach should be. And the S&P 500, like it's a good pulse of what the markets and companies are doing, but it is not a plan. It is not a well balanced portfolio. The S&P or an S&P index fund can be part of a portfolio, but it's in and of itself is not a plan. And so for savers and investors, conscientious planners, proactively having a plan ahead of market volatility, hopefully you are keeping more of a level head and a sound mentality and psychology.

Despite what we are seeing in the market, which without absent of a plan ahead of time, I am reasonably certain and understand why it's causing panic among a lot of investors when they see a chart like that. And the day to day news is pretty red. Yeah, I know you've said this feels familiar, but it's so funny, Peter, because I feel like I hear over and over, though, people saying, but this time it feels different. This time, well, they say history repeats or does not repeat. Rather, history does not repeat, but it often rhymes. And like we are rhyming here with twenty five years ago and that dot com bubble bursting the over concentration. If you step back, it has been very apparent as we've seen these magnificent seven.

They've been dubbed that and called that and they've been hailed as as bringing up the market and the volume and the value they brought over the last three, five years has been staggering. It just it does not continue on that way forever. Everything's cyclical and the bigger they are, the harder they fall, the higher they have flown, the further they have to come down. And so at a certain point in time, we just see a cool off. And the S&P on average in almost every year has some kind of inter year cool down in the neighborhood of 10 to 15 percent and then can still end a year up for the year and often does. But we haven't seen a real legitimate market cycle cool down. We can look back at Covid and 2022 and even the tail end of 2018 and sort of point to, hey, these were caused by so and so influence on the market, the Covid onset, raising interest rates to combat inflation. And so we haven't really seen just sort of a natural business cycle cool down in quite some time.

And I think that we're not only seeing that, but then gasoline on on what would have already been potentially a pretty healthy fire with all of the tariff proposals and implementations and then the escalations into discussions of trade wars. So it is an interesting can be scary time to be an investor. But I also see a lot of investors who are saying, hey, now's a buying opportunity. I was properly positioned ahead of time and now I want to get in while prices are cheap.

Right. And I'm glad you brought that up, Peter, because let's get into those tips, because number one is absolutely put that extra cash to work. I think a lot of people may feel more secure, more comfortable hoarding their cash, but that really does compromise your ability to create long term wealth. In any given year, I can't promise you that the market is going to be more advantageous and produce more for you than sitting your money in cash and just getting interest.

But over the course of years, the market has substantially more growth than cash. Even at these now higher relative interest rates, you are losing money safely and being left behind if you are missing out on to too long a period of time and not investing. Now, I have a personal comfort level with what I want to see is cash in the bank. And, you know, there's the suggestion of three to six months worth of living expenses for a reasonably well funded emergency account for those nearing retirement or in the red zone.

Maybe you want a little bit more than that to keep your powder dry just in case there are a couple down years in a row and you don't want to liquidate those equities at a loss. But for too much cash sitting on the sidelines, like at some point in time, I think that there is a shift from a savers mentality to an investor's mentality that must happen. And it's almost like buying a house or buying a car or having a baby.

If you wait around for the perfect, the absolute perfect time for any of those things to happen, that perfect time just never comes. You have to just do it when those those things happen or when there is some opportunity to become an investor. And when prices are on sale, when markets are in the decline, it means that there may be more profits available for investing when equities and prices and markets are lower rather than trying to buy in when everybody is euphoric and saying, oh, the market's going great. That's that's sort of when I worry. And then in times like this, you look for opportunities.

Right. I think it was Ross Child, right, Peter, who said the time to invest is when there's blood in the street, when there's blood in the streets, there's money in real estate. Yeah, it's a morbid saying, but there's proof to it. However, like the chart that's on the screen now is more of the I would say default psychology and behavioral pattern is that when everybody's saying, oh, the market's going great, oh, I'm making so much money. That's when people have that FOMO and then want to invest and then they end up riding the downturn and then we're down at the bottom and everybody's panicking and saying, I can't take this risk anymore and selling out.

And those are like right at the wrong time, doing the wrong thing at the wrong time with the wrong money. So you just you have to back up. You have to have a plan in place ahead of time. And it's still a good time because everything we've heard about this this decline in the market, like look at where the market was five years ago, three years ago, 10 years ago. Like we are still very high in the values of the market. And so now is still a good time to take a look at what you got back up, account for every dollar, what it's doing, assess the risk that you're taking. And maybe you find that there's more opportunity than there is to be scared of right now.

And then just a quick reminder as well. When we try to time the market, we often pull out, as you mentioned, at the worst time. So this shows a ten thousand dollar investment over a 15 year period from 2006 to 2021. If you just stayed invested, that ten thousand dollars turns into forty five, six. If you miss the 10 best days, that number is halved. And guess what?

Some of those 10 best days happened after some of the scariest days, directly after some of the worst days. So, yeah, you don't want to miss out on that and you don't want to have those knee jerk reactions where, oh, things are bad. So let me cash everything out.

You got to have a discipline plan and then stay the course. Right. All right. So now tip number two is to take advantage of those stock losses and consider tax loss harvesting.

How does this work? Yeah. So our tips here are going to be contributions, you know, taking advantage of lower prices, buying in number two, rebalancing. So if things are off kilter rebalance, but stock loss harvesting is a even more specific type of rebalancing. It is actually creating losses inside of the portfolio on purpose. And the reason being is from a tax standpoint, this can be advantageous if you've got gains on the other side. So if you've got large gains over here, you may want to assess and back up and say, hey, well, I've got some losses on one hand.

I've got some gains on the other. How do I sort of wash those and then rebalance and get reinvested strategically into things that from here, from the point that we are today, we believe are going to be profitable moving forward. And an important point that you mentioned, Aaron, it's not about timing the market, but it is about taking advantage of the time that we are in within the market, of where we stand. So not trying to predict the future here and say, oh, we're going to get into this because market timing and intuition and my crystal ball says that this is going to be good. But where we see the opportunity to do this kind of strategic rebalancing and then realigning the portfolio, that is simply taking taking advantage of where things stand. And then last, you say consider a Roth conversion. Why does a Roth conversion make more sense in a negative market?

Yeah. Number three is to, again, take take advantage of a downturn. Silver lining on a gray cloud here. No one likes to see volatility.

No one likes to see losses. But let's say that we were prepared to proactively pay taxes on some of our IRA dollars, our tax deferred dollars, and we had a balance of one hundred thousand dollars. And then we saw that balance due to a less than desirable market fall.

Right. The investments within that IRA lost value. Now we've only got eighty thousand. Well, for the same price that we were willing to pay to convert over a portion, we can now convert over a larger percentage of our pre tax tax deferred dollars for the same price. So in a down market, if you have already again, you proactively had a plan and you were prepared to. Pay some of those taxes ahead of time to conduct a Roth conversion, and then we saw a market decline. It may be a signal that it is a good time to go ahead and execute on that Roth conversion that you had planned for.

Except now that we get to convert over a larger percentage of the balance for the same price that we were planning on paying. So you need to be, you know, pretty strategic, cautious, plan accordingly, plan ahead of time. But again, taking advantage of the time that we are in, not trying to time the market, but taking advantage of where things stand today. So, yeah, contributions, rebalancing, conversions. All of these are advantageous opportunities strategically, even when markets are volatile.

Right. It's just so good to talk it through, though, Peter, because, of course, like you mentioned, nobody feels good about seeing that much red, but there are opportunities within it. So if somebody would like to speak through, talk through those opportunities or come to you to create that holistic financial plan, how can they get a hold of you? And the key, Erin, to identifying those opportunities and looking at them as opportunities is having a plan where you know what's at risk and what is not and what each dollar is doing.

And that's what we strive to put together for our clients is a well-diversified kind of time-tested strategy, long-term vision, personalized to each client. We call it the optimized retirement plan at Rashan Planning. And we do not charge for putting that optimized retirement plan together and giving you a review and assessment and evaluation and analysis of your current positions and holdings in account. So if you would like to get that, pick up the phone, give a call, 919-300-5886, 919-300-5886 for the optimized retirement plan. Just call and ask for, I'm looking for an optimized retirement plan.

That is what we will put together. It's about 10 pages. It goes over income, investments, taxes, health care, legacy, trying to optimize every aspect of your financial outlook and projection specific and personalized for your goals with a long-term vision looking out into the future. So again, the optimized retirement plan, 919-300-5886, 919-300-5886, or you can go online. It looks like richonplanning.com. It's Rashan Planning.

It's my last name, rashanplanning.com. Get that plan put together because it will help you weather volatility like what we're seeing currently in a more positive mental state. It's not just your finance.

It's your future and you got to plan for it. Right. Peter, thank you. Thank you, Erin.

Hey, folks. Peter Rashan here with Rashan Planning. So glad that you are enjoying the podcast, Planning Matters Radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are finding of value is at 919retired.com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401K or IRA, this is the Web site.

This is the resource where you can go. You can plug in your own numbers, your information. You can slide the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be. If you default and defer to the IRS's plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings.

So if you have not yet, go to the Web site 919retired.com run your numbers on the retirement tax bill calculator. This has been planning matters radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to take investment tax or legal advice from an independent professional advisor. Any investment and or investment strategies mentioned involve risk, including the possible loss principle. Advisory services offered through Brooks own capital management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.