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How frightening it is to look at your

sunset roller coaster

ROTH, IRA Rollover, Brokerage Account, etc., and see a performance number with a dreaded minus next to it every quarter. Was it your choices that caused this? Or was it simply the market? Or, perhaps both. Should we put our money in our mattresses and have wonderfully peaceful and lumpy sleep?

If you’re like the majority of Americans, you have, perhaps, had these feelings. Dread, second-guessing, loss of sleep. You are certainly not alone.

In this article, we will dive into how an advisor should help educate the client in order to shift the mindset during a long down-market from scared, to opportunistic.

The Mind and the Market

If you’ve ever heard the saying “you should hate losing more than you love winning”, then you already understand how the mind works when it comes to money.

It is a fact that people experience far stronger emotions when their account is in the red than when their account is in the green. Educating yourself is the best way to mitigate these feelings. We are here to help you with that task.

What to feel as the market falls

There are many emotions people naturally feel as the market falls, and there are always many questions. The worry is usually, how long and how far the market will fall, with fading hopes among the populous that it will ever return to its all-time high.

It is your lucky day! I am here to tell you that the market always, since its existence, returned to its previous all-time high. Whether it takes 1 month after COVID to drop 37%, and come right back up, 1 year, 5 years, or even 10 years, the market always finds a way to claw back. The dot com bubble in ‘99 through the mortgage crisis of ‘09, the market had no gains, as there were two huge crises in just that time. Luckily, if an investor was continuing to buy into the market, they would've enjoyed around a 15% gain in 2010 alone. From the end of 2010 through 2020, the market enjoyed well over a 230% gain.

It is always important to keep in mind, what is your time frame for this money? Will you be drawing income on this money in the next 5 years? Maybe 10 years? If it needs to be used during a down market, what are my options?

Do not feel panicked, stressed, or anxious, by any means. Being uncomfortable is the greatest advantage you can have while experiencing a down market. Being uncomfortable leads to putting oneself in a better situation than before.

Advantages of taking a capital loss

If I sell now, wouldn’t I take Capital Losses? In an after-tax non-retirement account (brokerage, advisory, etc), if your stocks, bonds, mutual funds, etc, that make up your account value fall below their cost basis, and you choose to sell them, there would be a capital loss.

A capital loss is not such a bad thing. Let’s say you’ve lost $40,000 in your account, and decide to ditch an old worthless mutual fund or stock, and reallocate into something that tracks with the market, like an S&P 500 index Exchange Traded Fund (ETF). There are two amazing benefits of capital losses.

First, you can use $3,000 per year of capital losses that directly reduce your taxable income. That could lead to thousands of dollars in tax savings depending on your tax bracket. Secondly, and most importantly, it carries forward forever. Yes, forever. So, when your account comes roaring back and makes 25% over the next few years, and suddenly you have $50,000 in gain, there are now tax advantages.

Let’s say you’ve used the losses for 3 years of income reduction, so you’re left with $31,000 in tax loss carry forward. When you sell your $50,000 of securities for a capital gain and want to deposit that into your account for a new car, down payment on a home, or help with your child's wedding, you will only have to pay a capital gains tax on just $19,000 of gains, rather than the full $50,000. Long-Term Capital gains tax is typically 15%, so that is a tax liability of $2,850 instead of $7,500.

It is important to understand the benefits of losses during a down market because when the market is down, your assets are going to come back at some point, so you may as well take advantage of the capital loss carry-forward rule.

Buy low… but how?

As the saying goes, “buy low, sell high”. Well, congratulations, you’ve made it! … To a market that has lost 20% year to date.

But what does this mean? The market, since its all-time high (January of 2022) has fallen 20 percentage points. This means most stocks and mutual funds have fallen by a percent in this range, perhaps better or worse, depending on the fund.

There are many people who think the rich get richer because they can flood their accounts with cash when the market is low. Although this is certainly a tactic of people who hold onto cash for a long time, it all evens out in the long term, because they haven’t had the gains of the past either.

The best way to get into the market is through forced savings. Weekly, bi-weekly, or monthly contributions into an investment account to buy shares as the underlying values are going up and down. This is a proven way to buy cheaper than the average price per share throughout time.

If you have cash, and you’re investing regularly, this is the best-case scenario. Those with cash see a declined market as a black Friday sale, and all stocks are on clearance. When they secure the 20% sale, when the market just gets back to even, they are 20% ahead of everyone else.

This is how you buy low.

The power of speaking with your advisor

As overwhelming as the stock market, timing, capital losses, and more can become, always feel free to use an advisor you know to just ask questions. One of our core values is to have the heart of a teacher which means it is our passion to help people understand these topics.

When it comes to the life work of our clients and prospects, no decision is ever taken lightly. No account value is disregarded because all concerns and questions hold such a heavyweight in a time like this.

We hope you’ve learned a great deal from this article, and more importantly, reduced some stress from your life today.


October 28, 2022

Drew Hodgson

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner. 

Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. 

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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