Mary Evans Picture Library/ROGER MAYNE/Everett Collection Are you notorious for being a procrastinator in life, or at least financially? Current market conditions may present an advantage for procrastinators. If you were putting off rebalancing, raising some cash, selling an unwanted investment or changing your investment firm, now may be the time for procrastinators to step up.
The first step is to revisit your overall financial plan. Then, the current portfolio, not the overall market. Do they fit together? What is the timeline for this money?
Then, one of the following actions may fit a procrastinator’s needs today:
1. Rebalance
Has it been two years or three years since you have reviewed your investments? Or you know it has been “awhile” but unsure of the last time you checked?
Reduce risk? If you are an older investor, you may want to lower your risk to market volatility. The older you get, the more conservative your portfolio needs to be. Selling because the market is going down is not a rational approach to rebalancing investments.
However, if you have noticed for years that your stock portfolio is now three times more than your fixed-income portion of your investments, this is the time to realign. By selling some of your investments that have a capital loss and some that have a capital gain, you can offset any tax implications. For the sake of income taxes, the losses will offset the gains. Paying no income taxes on the gains, may lighten the emotional load of the portfolio’s decline.
Add risk? If you are an younger investor, you have time ride out to market volatility. Have you been sitting on the sidelines? Have some cash that you keep meaning to invest? Or are you 35 years old with an extremely conservative portfolio you kept meaning to change? Now is the time for action. You can buy low with that money that has been on the sidelines. You can dollar-cost average and get in over the next month.
Assuming you can hold on emotionally and financially for the long term, this could be the time to buy into an ETF or index fund tied to the S&P 500 index SPX, -11.98% or a solid list of stocks.
2. Raise your cash
One thing is for sure in this unpredictable world, we all need cash at some point for an unexpected expense. Depending on which study you read, between 39% and 58% of Americans do not have $1,000 in cash savings in the bank.
Selling an investment at a loss is never easy to do, but having a purpose is helpful. Build a cash reserve to prevent a future stressor. Preventing a large credit-card balance or knowing how that repair bill will be paid or how lost wages will be replaced ahead of time is a invaluable use of money.
3. Selling an investment you no longer want
If you were gifted a stock that never fit your investment style or values, this may be the time to sell. For example, those who want to “green up” their portfolio may have been dreading the tax hit they would take because of the capital gains of the gifted stock. With this recent stock-market swing, you may have hit a sweet spot to take action and buy what you want.
For example, if oil companies do not fit your investment priorities, some of the biggest have taken large swings in the past several months. Conoco Phillips COP, -16.89% was selling six months ago at $57.20 a share. More recently? $28.10 a share.
4. Changing your investment firm
Some people hesitate to change investment companies, especially ones with proprietary products. If they leave the company, they will have to sell and pay taxes on their capital gains.
However, in the long run an investor may save money on fees and commissions and have a stronger portfolio by switching. If the capital gains on proprietary products has created hesitation, now is the time. No longer having large capital gains on those propriety products means those can be sold with less of a tax bill. The other investments can be transferred to the new firm.
Sound good? Then, make some changes today. Just be aware of the wash-sale rules. An investor will not be able to claim the loss on an investment for tax purposes if they sell it and then purchase the same investment within 30 days. Not to worry, only propriety products will need to be sold to make the transfer.
Remember, when selling outside of your retirement accounts, the cost basis is critical to calculate the actual capital gain or loss. Gather this information now for next tax season. A recent statement should have the purchase price, or dig a bit deeper into your financial history to find what the stock or mutual fund was valued at when you bought it.
Whatever option you chose, sometimes you need to look at your investment strategy, not the trend in the market. You need to understand what the money is for, who you are and what your timeline is to use the money. That helps you make a better decision whether you are a procrastinator or not.
CD Moriarty, CFP, is a Vermont-based financial speaker, writer and coach who wants to create financial peace of mind for others. She can be reached through her website at www.MoneyPeace.com.
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