Hello, and welcome to the retire. Once show the show designed to help you get to retirement, but most importantly, stay retired. I'm your host, Jonathan Rankin. I'm the founder and CEO of theorem wealth management. And I'm joined today by my lovely cohost. Hi, I'm Melissa Rankin. Thank you for joining us and for there's a lot going on this week, it looks like stocks are finally going to have a winning week in the first time in what, seven or eight weeks.

Always nice to see that about time, especially before long, a long three-day weekends, holiday weekend coming up. Yeah. So now that you know, stocks are, you know, they touched bear market territory last week, um, depending on the index that you're looking at, stocks are technically in a bear market and certain indices.

Overall there they've been down a lot over the past couple months. And so we want to spend this episode talking about investment strategies for bear markets. I know that episode four, we spent on volatility and how that impacts your retirement. And if you didn't watch that, we'll link to it right up here.

It's actually going to be in that corner right up there. So just click that. If you're watching this on YouTube, definitely go back into. Yeah. If you're, if you're listening to this on your, uh, on your iPhone or on your podcast platform, you're wondering, where is he pointing to? It's uh, it's on YouTube, so, but.

Right now we know that stocks are down and there's a lot of concern about what should you do? What should you be doing? Should you be doing anything? And so we want to, yeah. So we want to go through all those different things, but like always, well, so what do we want everybody to do you to subscribe? We want you to like us.

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Joining this retirement community, you can always head to retire once show.com to access all of our show notes and resources. We've got a retirement tool kit for you that you can download. So head to retire once show.com to check that out. Um, I said, just keep joining us for this thing. So, uh, with that, let's go ahead and jump right into it.

So with that, I think that we should start kind of right at the beginning, what are some investment strategies for a bear market? So one of the things that comes to mind when going through a period like this, where markets are down, you look at your portfolio and go, okay, I've got, I've got red. And I haven't seen red in a long time for something that a lot of red probably.

So one of the strategies that comes to mind is tax loss, heart. And so tax loss, harvesting. If you're investing after tax dollars, this is a way where you can lock in losses and it's going to help reduce your taxes by offsetting gains or future. So nobody likes to sell things when they're down. That's the hard part is that this is now we're getting to that behavioral finance, sentimental about it.

Like, well, if I just hold onto it a little bit longer, it'll come back or something like that. Yeah. There's, there's all, always some sort of emotion that comes, it comes down to it. And so it might be hard to look at a position where, I mean, you look at some of the NASDAQ positions that are down 60, 70, 80, even 90.

Some big names and you go, I don't want to sell that because if it gets, it's a big name, if it gets back to where it was, you know, maybe I'm not going to incur that loss, but tax loss harvesting allows you to at least use that loss to offset something in your portfolio that has a gain. So that how exactly does it work?

So the way it works is that you sell investments that are down, which I know is hard to do. And then once you can get past that, once you get past that you sell investments that are. And you replaced, you can replace them with similar investments. Now, one thing you want to be mindful of is what's called the wash sale rule.

So that is what. You can't just sell a stock today and buy the same stock either later that day or the next day, just to lock in a loss, you do have to wait 30 days to repurchase that same security, but you can find a security that similar. So. If you can, if you're investing in an individual name, like a, you know, an individual company, you can find a similar company in that same category or not the exact same, not the exact same one.

You might look for something that's got a similar correlation, or you can even buy, let's say an index that tracks that certain index. So you can get exposure to that same, same type of profile of an investment. So you're still taking advantage of maybe getting it at a lower cost. Yep. So then you sell that investment and then.

You can use those losses to offset gains. So if you have positions in your portfolio that you've held for years and you want to sell those and lock in those gains, because at some point, whenever you sell that stock, you're going to have some sort of capital gains. So this will help offset those gains so you can lock that in and then you go to buy something else.

Okay. So that's great if you have gains, but what if you have no gains, if you have no gains, then you should definitely call us first. Um, but if you have no gains, you can use the losses to offset future game. Or income. So if you are married, filing jointly, you can actually deduct up to $3,000 in realized losses from your ordinary income, and you can carry forward that loss for future years.

So it doesn't just go away. So let's just say you, you know, you take a $50,000 loss in positions that you just want to sell. Well, you can deduct 3000 from your income then. And then you can carry forward that loss, you know, until you that 50,000 is utilized. Okay. So you've kind of gone over when tax loss harvesting is a good idea.

What about when it's not? So tax loss harvesting is in general, a good idea, unless you're at a position where your long-term cap gains. Is it zero. If you're not, if you have 0% tax rate on long-term cap gains and meaning that you're single and your income is under 40,400, or you're married, filing jointly, and your income is less than 80,800.

Well then you're not, you might want to actually look at gain harvesting. So where are you just lock in some of those gains in a year where you're not paying long-term cap gains tax. And so it really wouldn't make sense to lock in losses at that time, if you don't need that. From a tax perspective because there's no gains that you really need to offset because you're not paying taxes on those.

So that's when it might not be the best time to do so. But I do know no matter what selling stocks that are down is, is hard to do, but you can look at the bright side, at least this way, you can get a tax benefit if it does make sense for you. Okay. So that's all kind of having to do with your investment accounts or holdings in that regard.

What about retirement? Yeah. So if yeah, tax office RV harvesting in our retirement account doesn't exist because there is no capital gains tax you can buy and sell as much as you want to. And you're not paying tax. If you're in a traditional account until you withdraw the funds. And if you're in a. Then you're not paying taxes at all from those gains because you already paid taxes when you contributed.

So if you're in a retirement account, another strategy that you can look at is rebalancing. So rebalancing your portfolio can make sense for both a taxable account and retirement account, but really in a retirement account, it will make sense because there are no taxes that you have to. So, can you go into specifically what rebalancing would look like?

Yeah. So rebalancing your portfolio is where you're buying and selling positions in your portfolio to get back to your original asset allocation. So when you first start establishing your investment account or your retirement account, whatever account you're investing. You buy a mix of assets. So that's whether it's stocks or bonds, cash might be in an asset class you have in there, uh, alternative investments.

So you've got this asset allocation and that should be based on your risk tolerance should be unique to you. It should be unique to the individual should fit within your financial plan and your retirement. And it should be based on your tolerance for risk. And so over time though assets grow and they fall at different rates, not everything goes up and down equally, even, unfortunately, even though sometimes it feels like that, especially with a year like this, where stocks are down, bonds are down, but over time, things do go in separate directions or they just, they might go in the same direction at different velocities.

So let's just look at an example. We always talk about the 60, 40 portfolio. And if you didn't check out episode number one, we'll link to that as well. Great detail of that great detail on, on that part of it. So, uh, we'll also link to that right up here. Um, and for those listening, we'll link to that. Yes.

And so let's look at the 60 40 portfolio, just as an example. So five years ago you invested in a 60% stock, 40% bond investment allocation over the last five years. Your stock's light likely outperformed your fixed income. So that stock mix might be 70% stocks and your bonds might be 30%. So now you're taking on an entirely different risk profile.

So by selling that 10% growth in stocks and buying fixed income by default, you're buying air, you're selling high and you're buying. Okay. So what are some of the different strategies you can do to kind of help the rebalancing part of it? So you can make rebalancing kind of a habit. It's one of those things where you want to have a routine around the, so there's a couple different ways you could do it.

You could do calendar rebalancing, and that's where you say, you know what, every quarter, every six months, every year, whatever that timeframe is, I'm going to set up an automatic timeframe for me to rebalance back to my original asset. Like. So if, and if you do it quarterly and let's say you start and you're at 60 40, and in three months, you are now at 62 38.

Well, you rebalanced, you sell that 2% gain. You go and you buy that 2% back in fixed income and you just continue to do that. So that's one way. So that's kind of like stepping on the scale every so often to, to check in with yourself, to see where you're at. That's right. And so it's the exact same is that you're just, you're setting up that habit to go in and automatically just check in and kind of go back to.

Back to where you were sat, realize you're, you know, you might step on the scale and you're like, oh my gosh, I've gained 10 pounds. So you might get out of balance. But you went on a scale. That is how I feel during the holiday. So when it's just, you know, there's nothing but cakes, candies, and cookies around and all I want to do is eat.

So that is one way to do it is calendar rebalancing. Uh, and then the other thing is you can look at what's called percentage of allocation or kind of a portfolio drift. So what you do is you set up parameters to say, okay, I want, let's say a 5% drift rates. So if any of the assets. Within or get outside of a 5% drift, meaning your stocks go from 60% to 65%.

That's a 5% move. It triggers an automatic rebalance. And so you could set it up to where, if you want 10% or six or whatever that number is just something that is kind of routine that you can stick to or set up with your automatic, you know, whether your advisor or your investment account, you can set up automatically.

So that is you could also do a combo. So you can kind of set it up to where, all right, I'm going to set these percentage drifts at 5%, but at the same time, I'm also going to do a mid-year or, you know, by twice a year kind of like check. Yeah. So you just have kind of both of those, but think most importantly, make sure you're rebalancing back to a portfolio that makes sense for you.

Yeah. So you're going back to what you originally knew your investment strategy was just make sure you're getting back. Yeah, but let's just look at, let's say that you started investing when you were younger and you had 80% stocks, 20% fixed income. And that's the asset allocation you've had for the longest.

And now you're getting closer to retirement. You go, well, I'm going to rebalance. I'm going to rebalance back to 80 20. And the reality is maybe an 80 20 might be too much risk for what you need and what you want. Yeah. So you always want to continue to check into your financial plan and your risk tolerance to make sure that you're still able to handle that level of risk today.

So it's making sure that you're always going back to that financial plan and that return. Okay. So kind of continuing to check in with you essentially by way of rebalancing. So a question that we get shifting gears a little bit, um, when the market's down, we get a lot of people who want to, um, do Roth conversions, which we definitely touched on last week in great detail and covered a bunch about that.

What are your thoughts on that? So when the market's down, it is a, it's always a good time to consider a Roth conversion. You think let's just look at an example, you have a hundred thousand dollars in a retirement account, and let's say it goes down by 30%. And if you want to convert that if your goal the whole time was, I want to do a Roth conversion at some point.

Well, no one likes to see portfolio losses, especially 30%, but you're now paying taxes on 70,000 as opposed to that a hundred thousand. So you're ultimately paying less taxes. And if you experience long-term growth, even if you hold the same securities, And the long-term growth is on, you know, the Roth account or the traditional IRA.

Well, the reality is you're going to experience that in a Roth. Now that is going to be tax-free growth, tax-free withdrawals and all the benefits that we talked about last week in our Roth episode. So it is a, it is a time where you want to consider it, but ultimately you're still paying uncle Sam taxes and you still want to make sure that he's going to get paid some way, just like we talked about that.

There are just times where Roth conversion doesn't make sense if you're in the highest tax bracket now, and you're living in a high tax state. Well, even though the market's down, if your goal is to retire in a state like Florida with no state income tax or Texas, um, if your goal is retire in one of those states and you know that your income is going to be lower, doesn't matter how much the market's fallen.

You're still paying less taxes at some point later on. So, uh, it's really a case by case situation, but that's why a lot of people are talking about it now. Values are down and it gives you that opportunity to, to pay taxes on a lower base. Okay. So those are all good things to consider doing or to think about offsetting things, I guess, what should you not do?

So the first thing that comes to mind that you should not do in a bear market is panic. Panic sell is always the first thing that comes to mind because nobody likes to lose money. It's very knee-jerk reaction. It is, but it's, it is hard to avoid because especially some of the stocks that you see now that are, that were household names.

That are down 40, 50, 60, some percent or more. It's hard to stomach. It is. And you go, well, I just want to hold onto the money I have. And so the thought would be, let me just sell everything and wait until things get better. I know we talked about that before that no one knows when things are going to get better.

And you know, the reality is that if you're buying stocks right now, You're buying them at a, at a better price than what they were a couple months ago. You're buying them on sale. Yeah, this is the stock market is the only thing where a red tag sale is a bad thing. So, um, I would say, you know, you don't want to panic sell.

And then I saw a study by MIT. I think it was from a few years ago though, but they have found that 30, more than 30% of people who panic sold, never actually got back into the. At all at all, because it's always hard to get back in it because if you think, okay, let's just say that we're just gonna use round numbers here.

That the Dow is at 20,000 and I know it's not, but we're just gonna use that as a round number. So the Dow's at 20,000 and you sell today and you're gonna wait for it to become at a better price for you to get back in and stable. Well, what if it does? Yeah. What if it doesn't do that? What if it just starts going back up and 20,000 was the.

You're not going to feel comfortable buying it 21,000. You're not gonna feel buying comfortable at 22,000. Cause in your mind, you're going to constantly feel like I should've just stayed in or you're going to think I'm just going to wait for it to get back to that price. It's like the waiting game. Yep.

So I'm going to wait until it gets back to where. At least where I got out of, because why now I essentially sold low and I'm buying high and that's not the right recipe for investment success. So panic selling. That's a reason why a lot of people never get back in. It's impossible to time the bottom.

And it's always hard to get back in buying back in when you're all the way out is very, very difficult because when things keep going. What is the thought it's going to keep going down. It's going to get worse, but the truth is you don't know that you don't know that. And nowadays, especially since 2008, I think what, one of the things that we've seen is we don't know what we don't know the actions of the fed.

We don't know what fiscal policy might be. And we've seen. Rapid movements in the markets based on just changes in monetary policy or even speeches from the fed. The world is crazy right now. So if the fed came out and said, you know, we think inflation solved and we're going to stop raising rates, the market might recover quickly.

And if you're just sitting on the sidelines, you're going to miss that you miss the opportunity. It was the same thing that happened in, uh, in 2020 when the market fell and then all the stimulus and monetary easing was it. And the market quickly rebounded from March 23rd and just went up and skyrocketed from there.

But if you panic sold, what are you, you're not going to buy in 10 or 20% higher than where you got out of. So it's hard to do that. So that's one thing you definitely don't want to do. Okay. So another thing that we get a lot of questions about a ton of people ask this during bear markets, should you stop contributing to your 4 0 1?

This is a very common question that we get, and I know it's hard because every other week or every month, whenever you're putting those contributions in, you see that contribution go in and you see it start taking down and you go, well, I'm just throwing money away because it's going in and I'm losing money immediately.

But the rally is like, we just talked about, you don't know when things are going to bottom. You're buying stocks at a lower price than what they were a few months ago. So if you were just, you're contributing a few months, You might as well be contributing now because the reality is you're buying stocks or whatever you're buying lower than you were a few months ago.

Yeah. So in fact, you want to always make sure that you're continuing that contribution rate. It's not something that you want to get used to stopping and restarting and stuff because the benefit of a 401k or automatic contributions is that it's automatic. You shouldn't have to think about it. It's just compounding over time.

And we, you know, what we've seen or. The history of the market is that over a long period of time assets grow. So if that's the case, we're going to look back on this time at some point and go. That was a great buying opportunity and stopping and starting your 401k contributions might sound like a good thing to do because every week you might see it going down.

But the reality is if retirement's a ways away, a downmarket is almost what you want, because now you're buying things at a much better. On sale again on sale. And it kind of speaks back to the study that you mentioned, if you stopped contributing to your 401k. I mean, there's the possibility you're taking away that automatic kind of out of sight out of mind, at least with the 401k, you may never start it again.

I mean, realistically. Yeah, because why would you restart saving at a much higher value than where you stopped? You might go well, if you thought the market was expensive, we'll go back to if the market's expensive at 20,000 in the city, Then you're going to think it's a lot more expensive at 20 1022 and 23.

So it's never going to be the right value for you. So just get in the habit of consistently contributing. Don't stop that. And then over time, you're going to see long-term growth as the most important thing on that is staying consistent. Consistency is key when it comes to that. Okay, perfect. Well, I think we've covered what to do and what not to do.

Yeah, it is obviously it is a, it's a, it's a really crazy time out there. And I know it's hard to go through these things and I'm always reminded of there's a wall street, legend. His name is Bob Farrell, and he's got these 10 talk about him, often 10 rules for market investing. I'm always in times like this, I always think back to his rule, number 10, which is bull markets are more fun than bear markets.

And I think that is absolutely true and it will be true to the end of. Um, I had never seen someone, even though they're buying stocks or investments at a lower price. I never see people celebrate these times because it's always painful, which is strange because if I go to a store and I find something on sale, I'm ecstatic.

I'm happy about it. But I mean, I feel like it goes back to you see the red and there's something about that. That's very on a personal level. Very off-putting. And, you know, times like this do create a lot of good opportunity, you know, like I said, we're going to look back at this time and go, that was a really good buying opportunity.

And you're going to wish that you took more advantage of it, but it's just hard while you're in it. So the. And our minds is you want to maintain that discipline, investment strategy, whatever that is, create that strategy, you know, make it based in your financial plan, that, that your financial plan and your retirement plan, that that is that reinvestment strategy is, is working together with that.

It's not like your investment strategies in a vacuum, and you're just investing just to invest, invest for a purpose. Bring it back to that financial plan. If you don't have. We can absolutely help you with that. Um, I would suggest going to retire one show.com. Download that retirement toolkit we talked about.

You can also schedule a free retirement assessment. We'd be happy to walk through the retirement planning exercise with you. So you could see one of my taking too much risk. What should I be doing with my investments? What type of portfolio should I be investing in in general? We can help with a lot of those things, but right now, maintain the discipline.

Don't panic, sell it. Doesn't work out in anybody's favor. And then, uh, before we get outta here, what do we want people to do in mal? Well, first we want them to remember consistency is key. I think that's a very important takeaway, but we also, we want you to. Is this the share that's the share. Yeah. That's the arrow share the arrow share, or just share it, share it with your friends, with your coworkers, with your family, share and subscribe and like us and rate us five stars and tell everybody you know about the show.

Thank you so much for being here. I'm Jonathan Rankin and I'm Melissa Rankin. Thank you for joining us. .

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