Don't worry, I don't have any more grand ideas to present today--I simply bring you some truly expert advice. It's from my dad.
You guys really appreciated the last time I posted his investment advice, back in January, which was aimed at people a little closer to retirement age. (Note: the rest of that piece didn't age very well. I'd like to think it's just "early.")
He's not at all a market timer, and I consider that a fool's errand anyhow. He's a financial planner. And after Terry C. wrote yesterday asking for dad's "medicine for times like today," I thought that was an excellent suggestion indeed.
So here goes. It's a series of questions to ask yourself, starting with...
(1) Is your job or salary in jeopardy in the near term and if so, do you have the liquid assets (e.g. cash) to handle it? That's the most important thing right now.
(2) What is your investment time horizon? Are you saving for retirement, or your kids' college starting date? That's a big difference for most people.
(3) Don't try to catch the bottom. Stick with dollar-cost averaging (i.e., steady investments). If you rebalanced in late 2019 your fixed-income allocation is probably higher now than your bond/stock target, so consider raising your stock allocation in increments of, say, 5% of your portfolio for every market drop of 5% until you hit your target.
(4) Pay down high-interest debt! If you're paying rates of 4%, 5%, or more, paying that down or refinancing to a lower rate is the best fixed-rate return you can realize right now.
(5) Consider a Roth conversion. If you didn't convert your IRA or 401(k) before, you could do so at a "discount" now. You'll pay taxes on the conversion now and be able to withdraw your money tax-free later on--plus, why not do it now especially with "70-cent" dollars if the market goes back up 20-30%? (Kelly note: I have both a normal and a Roth 401(k).) Remember: your *actual* return on a traditional IRA/401(k) is "1-your tax rate." Ouch. And if the 2018 income tax cuts expire as scheduled in 2025, depending on how old you are, you could be facing even higher taxes on your earnings at that point.
(5a) PLUS, don't forget that your contribution rates for Medicare Parts B and D are based on your income. You can do the Roth conversion at "70 cents" on the dollar, so your income (and taxes) wouldn't go up quite as much now as they would have before the selloff. If you're in retirement, this keeps your contribution rates from jumping. If you're pre-retirement, you can withdraw and convert a decent amount now to avoid the same issue down the road. (A lot of financial planners have software that can specifically calculate this.)
Whew. I hope this is helpful! I am a very lucky daughter, ain't I? :-)
See you at 1 p.m...
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