Riding the Market Roller Coaster

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    The stock market’s drop in April, after the Dow Jones Industrial Average closed in March at its first new high since the Great Panic of 2008, has prompted a lot of conflicting predictions from analysts.

    Some say it marks the end of an impressive bull market, while others say it’s just the beginning of a much larger rally. These predictions may or may not turn out to be correct — and they leave the investor confused.

    However, as with the downturn four years ago, there are smart financial moves everyone can make to potentially take advantage when and if the market rebounds.

    Rebalance — Rebalancing is the process of correcting an asset allocation that has become over-weighted or under-weighted due to a
    market fluctuation. In layman’s terms, it is the process of bringing all your investments back into a predefined mix of equities and fixed
    income assets.

    Donate Appreciated Securities – Anyone charitable minded may have a perfect opportunity to meet donation goals and double their tax savings using appreciated securities during a market high. Provided you have owned the security for at least a year, you can donate the asset and use the current market value as a deduction on your taxes.

    Exercise Stock Options — Stock compensation is an important tool of corporations today in attracting and retaining key employees. Many executives find a significant portion of their compensation being paid in the form of stock options. A market high may be an excellent time to exercise some of your vested stock options if your company stock participated in the market rally.

    Net Unrealized Appreciation (NUA) strategy — Withdraw company stock from your 401(k) and, instead of rolling it into an IRA, transfer it to a taxable brokerage account. There are strict rules to follow so consult a financial adviser who is experienced with this transaction before
    proceeding.

    Stop Timing the Market – The Great Panic in 2008 and 2009 scared many investors out of stocks entirely. The past four years may have been a missed opportunity as these investors waited on the sidelines for the right time to get back in. You will never know when the stock market is going to go down or when it will recover. The good news is you don’t have to know.

    Devise a solid financial plan using an asset-allocation strategy that divides your money between a diversified equity portfolio and fixed income.

    Rebalance your portfolio periodically to take advantage of stock market volatility. The famous investor Peter Lynch said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

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