Over the past couple of years, we’ve had a long bear market and
a period of low interest rates. Consequently, it’s been tough for
stockowners and income-oriented investors.
Over the past couple of years, we’ve had a long bear market and a period of low interest rates. Consequently, it’s been tough for stockowners and income-oriented investors.
You can’t control market volatility or the movement of interest rates. But you can create a “recovery plan” that will allow you to make the best of your situation.
Put your losses to work
Your investment losses are tax-deductible, to a point. You can use your capital losses to offset any capital gains you have, plus up to $3,000 of other income, including earned income.
Balance your portfolio
Your investment portfolio may have become “unbalanced” – and you might not even be aware that it happened.
For example, if your stocks have declined sharply, then bonds or other fixed-income instruments may now make up a larger percentage of your portfolio’s total value than you had originally intended.
Stabilize your income
What should you do with your bonds or certificates of deposit that mature when market interest rates are low?
You could “park” the funds in a money market account until interest rates rise again, but that might take a while – and, in the meantime, you will have almost certainly missed out on some better opportunities. To create a bond ladder, you invest in an array of short-, intermediate- and long-term high-quality bonds.
Swap for quality
Look through your portfolio for opportunities to replace lower-quality investments for higher-quality ones that may now be attractively priced.
Be a tax-smart investor
Taxes can significantly erode your overall investment returns. That’s why you need to look for tax-advantaged vehicles. Take full advantage of tax-deferred instruments, such as your 401(k) and traditional IRA.
You can get tax-free earnings growth from a Roth IRA, provided you meet certain conditions.
Clearly, you’ve got many opportunities to create a recovery plan that can help keep you on track toward your long-term financial goals.
Brad Ledwith is an investment representative with Edward Jones and has an office in downtown Morgan Hill.
