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Never Let a Good Crisis Go to Waste

Dear Clients and Friends,


Winston Churchill beat me to the punch with his well-timed quote, “Never Let

a Good Crisis Go to Waste.” While no one enjoys seeing the financial markets

going down, this can be a strategic time to take advantage of market

weakness and consider various financial planning strategies. Below, I cover

some of these ideas.


For the record, we do not consider the most recent mild decline in the market

to be the beginning of a crisis, or even the start of a renewed bear market. We

believe the recent weakness is nothing more than a pit-stop amid a longer-term

recovery from last year’s bear market. That said, let’s look at some

strategies for weak markets.


1) Boosting Contributions – When you shop for your groceries, you’re in

constant pursuit of discounts. Why should investing be any different? A

popular and common adage in investing is to “Buy Low, Sell High.” By

increasing your contributions, whether it’s to a retirement plan (401K,

403B, IRA) or an investment account, you acquire additional shares on

the cheap and when the market eventually recovers, you reap the

rewards. This also helps to avoid market-timing, a popular behavioral

bias when it comes to investing. However, if anyone has a good

algorithm for market timing, I’m all ears!


2) Roth Conversions – A Roth conversion is when you transfer money

from a pretax retirement plan (traditional 401K or IRA) into a Roth

401K or IRA account. Since no taxes were ever paid over the years, the

conversion is considered income and gets reported on your tax

return. Aside from the tax-free growth of Roth accounts, the beauty of

converting when the markets are down is that you save some tax

dollars on the conversion since your investments have

depreciated. Some other perks of conversions are that Roth style

accounts aren’t subject to any Required Minimum Distributions, the

access to tax free withdrawals after you meet certain requirements, and

they are excellent for estate and legacy planning.


3 ) Gifting - For 2023, the annual exclusion amount was raised to

$17,000 per person, or $34,000 per married couple. You can leverage

your gifting ability by transferring shares from your portfolio, allowing

the recipient to enjoy the market appreciation when the market

rebounds. You can also help with educational goals and contribute

towards a 529 plan. If you really want to up the ante and turbocharge

your gifting, you can make a lump sum gift of five years’ worth of the

exclusion. Based on the $17,000 limit, that’s $85,000 worth of

gifts. The caveat is that you're unable to gift any more funds for the

proceeding five years.


The government also has a lifetime exemption amount of ~$12,000,000

per person, so any gifts below this threshold and you won’t pay a penny

in gift tax. Starting in 2026, the lifetime exclusion reverts back to

~$5,490,000 per person and it’s a use or a lose situation.


4 ) Tax Loss Harvesting - This strategy allows you to sell any

investments in your nonretirement accounts at a loss so you can offset

any gains you have from other investments that you sell. When you file

your tax return, if your losses outweigh your gains, you're allowed to

report a capital loss up and deduct up to $3,000. Any losses in excess

are carried forward for the following years. Overtime, tax loss

harvesting has been proven to help in terms of returns, reducing risk

and enhancing portfolio diversification according to a white paper from

Vanguard. Thanks to last year’s overall stock and bond performance,

we at MOR Wealth Management did a record number of tax loss

harvesting for our clients. For any clients that accurately guess how

many, we’ll donate $100 to a charity of their choosing.


5) Time for a Gut Check? – This may be an opportune time to rethink

your risk tolerance. During periods of market turbulence, people tend to

reexamine how much risk they believe they can withstand and

reevaluate. This is something we at MORWM review on an annual basis

when we update your financial plans or are reviewing portfolios.


6 ) Funding Accounts – If you have some cash sitting on the sidelines

not earning any interest, consider putting that money to work! If you

have a child that has earned income from working, you can open a

custodial account (we prefer a Roth IRA for kids) and fund their account

so they can get a head start on their retirement journey. Another idea

is that for anyone utilizing a health savings account, invest your hardworking

dollars. According to Employee Benefit Research Institute

(EBRI), as of January 2021, only 12% of accountholders invested their

funds.


As irritating as they are, market declines are an inevitable part of the investing

game. That’s why it’s important to integrate all aspects of your financial plan

with your investments, so when opportunities like market downturns present

themselves, you’re ready to pounce and take advantage.


Onward and Upward,

Devin

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