Opinion: 5 tips to help make sure you never waste a market crisis

After seeing US stocks post the second-worst start of a year since 1932, you might be  hoping for a come-from-behind win in the markets like Rich Strike’s improbable victory in the Kentucky Derby.

This is understandable as the S&P 500 and Nasdaq indexes are on a seven-week losing streak, and the market continues to be volatile.

The bad news is there is no way to predict the near future or when the market will turn around. The good news is there are some smart moves you can consider right now regardless of what the markets do in the near-term.

Invest cash and buy low(er)

Buying low and selling high is a wise way to invest and this may be the ideal time to invest more cash for long-term financial goals. Understandably, you may feel fear by investing amid uncertainty, but historically times like this have often been the best time to invest.

Warren Buffett famously said, “Be fearful when others are greedy and be greedy when others are fearful.”

Indeed, history is on the side of the investor who is willing to buy when markets are in turmoil.

Going back to 1926, US stocks have tended to deliver above-average returns over one-year and three-year periods following a 20% or more decline.

As of Monday, the S&P 500 index has declined about 17% from his all-time high.

Fund your IRA account early

When it comes to investing new cash, consider funding your Traditional or Roth IRA account now rather than waiting.

The maximum contribution for 2022 is $6,000 per taxpayer or $7,000 if you are age 50 or older. Most people procrastinate until close to the deadline to contribute to their IRA account, but funding it earlier will give extra time for your account to potentially grow more.

Roth conversion

One of the bright spots of a market downturn is the opportunity to save money on a Roth conversion.

For example, if you had a Traditional IRA that was worth $50,000 on Jan. 1 and is now worth $40,000, you can convert now and pay tax on $40,000 instead of $50,000 just a few months ago.

If you have confidence the markets will recover, you have chosen an ideal time to convert.

This strategy does not have an income limitation and can be a powerful way to lower your future taxes, particularly if you believe tax rates will be higher in the future.  Although there is no guarantee of this, current tax rates are historically low.

Be mindful of a couple things with Roth conversions

First, this strategy will increase your taxable income for the current year, so it’s important to plan for a larger tax bill.

Ideally, you should pay the taxes with dollars outside the IRA. Also, Roth conversions cannot be undone once they are executed, so make sure you run the numbers first, ideally with your tax and investment advisors.

Harvest losses in taxable accounts

A down market is the ideal environment to look for tax loss harvesting opportunities in your portfolio.

You can realize capital losses by selling positions that are lower than the price you bought them, and then immediately buying another similar security (although not the exact same security).

The beauty of this strategy is that you can realize capital losses for tax-planning purposes, while leaving your asset allocation strategy intact.

Taxpayers whose capital losses exceed their realized gains for the current year also can deduct remaining capital losses from their ordinary income up to $3,000 for married couples and $1,500 for others.

You should be careful not to violate the wash sale rule when tax-loss harvesting, which disallows a capital loss if you buy back the same security you sold within the last 30 days. Again, it’s important to consult with your tax and investment advisers before executing this strategy.

Will you be a victim or victor?

In sports, it’s been said that the best defense is a great offense.

In like manner, you can play some offense and score some points in your financial planning, regardless of how long this market downturn lasts.

You now know that you don’t have to be a victim in this markets since there are effective and proven strategies to come out a victor in your planning.

In the meantime, let’s pull for stocks to have a Rich Strike come-from-behind victory in 2022.

This article originally appeared on Oklahoman: Tips for investing amid a stock market crisis and downturn