With the most recent bear market being confirmed in the S&P 500 on June 13th of 2022, there could still be several months left. Bear markets are portrayed as being bad for your investments but there are still ways to take advantage of a bear market and come out strong on the other side. Continue reading to learn 3 ways to benefit from a bear market.
Before going into the benefits of a bear market, it is important to understand what a bear market is and what causes it. A bear market is when there is a drop of 20% or more from recent highs in stocks. There are several different causes of bear markets, such as movements in oil prices, poor lending practices, investor speculation, and more.
Now, onto the benefits:
1. The opportunity to increase savings and investments
When stocks are selling for a discounted price, it can be the perfect time to pick up some new assets. If you have any money that you have been saving to use for investments, this is the time to use it. Investing in the long-term market now will give you long-term returns. You can get a better return on your investment by purchasing stock while it is selling for less in a bear market. Bear markets occur fairly routinely so there is nothing to be scared of. This is a great opportunity to continue to grow your investment portfolio.
2. The chance to complete Roth conversions
If you have assets in a traditional IRA, a bear market is a good opportunity to complete a Roth IRA conversion. With a conversion from a traditional IRA to a Roth IRA, you will have to pay taxes on the assets. With the value of the assets being down, you can lower the associated tax bill. In addition to the lower tax bill on the transfer, all of your funds in the Roth IRA will grow tax-free so you will see an increase in your assets’ value, you can withdraw your funds from the Roth IRA after five years without any taxes or penalties, and you will not have to take required minimum distributions from your Roth IRA in retirement.
3. A time to harvest any tax loss
Many of your 2021 or 2022 investments could be showing as a loss, and this bear market is your chance to take the loss on these investments. When you realize a loss on your tax return, you can offset the capital gains you received from other investments. If the loss is greater than the amount of capital gains you have for the year, you can offset your taxed income by up to $3,000. Any losses beyond that can be applied to future tax returns. The benefit of tax loss harvesting is offsetting gains and income while retaining capital in your investments by not having to sell off your stocks.
With the volatility in the market, it can be difficult to keep up with the current investment trends yourself. Our team at Abundance Wealth Solutions can manage your investments and retirement planning on your behalf, personalized to your goals. If you're looking for personal finance management, contact us today.