Scary Markets can be an opportunity if you have a plan, here are just a few things to consider:
When markets feel like they’re racing to the bottom, it’s natural to feel uneasy. But you have far more tools at your disposal than simply “buy low, sell high.” In fact, selling high may not even be realistic in the current environment. Here’s how to navigate downturns with clarity and confidence.
- If You Have a Financial Plan — Stick to It!
A well‑designed financial plan already accounts for the unpredictable nature of markets. Before doing anything else:
- Revisit your plan.
- Confirm your investment strategy still aligns with your long‑term goals.
- If it does, you’ve already done the hard work.
Staying disciplined is often the most powerful action you can take.
- Build Your Top Three Investment Theses
If you manage your own portfolio, identify your three highest‑conviction investment ideas and the specific entry points you’re comfortable with.
If you have:
- Cash on the sidelines, or
- An underperforming investment that no longer fits your goals, redirect those dollars into your top ideas.
Professional managers always maintain a “wish list” of investments they’d like to own at the right price. Broad market declines often create those opportunities.
Setting target entry levels in advance removes emotion and ensures you act consistently, whether you’re watching the market or not.
- Establish Clear Rebalancing Thresholds
Even if you already own everything you believe in, don’t let your portfolio drift too far off target.
Diversified portfolios naturally shift as sectors react differently to economic forces. A well‑diversified allocation helps soften the blow during downturns.
If your nest egg is in an employer plan:
- Consider automatic rebalancing quarterly, semiannually, or annually.
- Or choose a target‑date fund aligned with your risk tolerance and retirement timeline.
If you want to be more tactical:
- Set rebalancing reminders on a personal device based on market pullbacks (e.g., S&P 500 down 10%, 20%, 30%).
- This forces you to buy more of what’s down and trim what’s held up removing emotion from the process.
This is hard to do because money is emotional. It represents your future lifestyle, major purchases, and retirement confidence. But disciplined rebalancing is one of the most reliable ways to enhance long‑term returns.
If you work with an financial professional and have agreed to an active strategy, review your statements to ensure the strategy is being worked.
- Consider a Roth Conversion During Market Declines
For individuals with substantial pre‑tax retirement savings, a market downturn can be an attractive time to convert assets to a Roth IRA.
Key considerations:
- A Roth conversion increases your taxable income in the year of conversion.
- Depending on your bracket, the tax bill can be significant.
- Withholding taxes during the conversion can help avoid surprises.
Why downturns create opportunity
When asset values are temporarily depressed, you convert:
- A lower dollar amount with the same amount of investment shares.
- Pay tax on that reduced value, and
- Allow the recovery to occur tax‑free inside the Roth.
Example
Convert 1,000 shares at $100 → $100,000 taxable → $20,000 tax at 20%.
- If the market drops 25% and shares fall to $75 → $75,000 taxable → $15,000 tax.
- When shares recover 33.3% back to $100,000, all that recovery happens tax‑free in the Roth.
Additional Roth benefits
- Tax‑free growth and tax‑free withdrawals at age 59½
- Access to converted principal after 5 years without penalty
- Protection against potentially higher future tax rates
- More favorable treatment for heirs
Legacy example
A beneficiary inherits $100,000 in either a traditional IRA or Roth IRA. At 8% growth for 10 years:
- Both accounts grow to $215,892.50.
- Traditional IRA: taxed at 27% effective tax rate → $157,601.52 net.
- Roth IRA: $215,892.50 tax‑free.
Conversion example revisited
Convert during a downturn:
- $75,000 converted
- 20% withholding → $60,000 enters Roth
- After 10 years at 8% → $129,535.50
If left in the traditional IRA:
- $75,000 grows to $161,919.37
If the owner passes away 10 years after conversion and the beneficiary waits 10 years assuming an average rate of return of 8%:
- Roth grows to $279,657.43
- IRA grows to $349,571.78
But the IRA is fully taxable. Assuming a 21% tax rate → $276,161.71 net (less than the Roth).
A married couple earning $150,000 today would likely fall into the 22% bracket before state taxes and local taxes, reducing the inheritance to roughly $265,674.55.
This spike in income may also:
- Reduce tax credits
- Eliminate Roth contribution eligibility
- Hurt college financial aid
Keep in mind
- Your total income affects, IRMAA, ACA premiums, and more.
- The IRS aggregation rule treats all IRAs as one bucket.
- Consult a tax professional before implementing a conversion strategy.
- Stay Calm and Trust Your Allocation
You chose your investments for a reason. Even during downturns, diversified portfolios generate dividends and interest. Reinvesting them buys more shares at lower prices, accelerating long‑term growth. Adding more contributions is always a plus, but if cash flow is tight, just remember that your investments continue to work for you.
- Use Tax‑Loss Harvesting Strategically
Market declines create opportunities to realize losses and reinvest in higher‑conviction ideas.
Be mindful of:
- Wash‑sale rules
- The temptation to sit in cash waiting for the “perfect” moment
- The long‑term cost of holding too much idle cash
- Avoiding the sale of quality long‑term investments solely to show a loss, after all paying taxes is a part of investing and hitting your targets to meet your long term priorities takes precedence.
- Review your 3–6 Months of Emergency Savings target
Before making any investment moves or contributions for your long-term priorities, ensure you have a proper cash buffer. This prevents forced selling during downturns and protects your long‑term strategy.
Bottom Line
Invest with confidence by:
- Having a plan which aligns your investments to your priorities, if you don't have one, there is no better time than the present
- Sticking to your allocation that makes sense for you
- Using market pullbacks strategically
- Keeping your financial foundation strong
A thoughtful, disciplined approach turns scary markets into long‑term opportunities.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.