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Market declines and corrections are normal stock market behavior. That doesn’t mean there aren’t strategic things you can do during a market decline. Discover the different ways we can manage your finances during a market decline: 
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The Silver Lining of Market Declines

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When markets decline many people panic and try to pivot their investment plan when a wise thing to do is nothing. Market declines and corrections are normal stock market behavior. That doesn’t mean there aren’t strategic things you can do during a market decline. Discover the different ways we can manage your finances during a market decline: 

Tax Loss Harvesting

Tax loss harvesting is selling an investment with a loss. The loss can soak up realized gains, as if it were a sponge. You can potentially reduce your taxes on the capital gain. You also can proactively realize losses if you intend to generate gains elsewhere in that same calendar year.

Example: If you were selling company stock and the sale would result in a taxable gain, then realizing the losses now would help offset that gain from the sale of the company stock. While you can buy back the security you sold, you will need to wait 31 days before and after the sale to avoid violating the IRS wash sale rule.

ROTH Conversion

A ROTH conversion is moving assets from a regular IRA, SEP, or 401k into a tax-free ROTH IRA or ROTH 401k. When you withdraw funds from the regular IRA/401k, you are required to pay ordinary income tax. The benefit of a ROTH is that the assets can grow tax-free. Why consider a ROTH conversion during a market decline? The value of your investments has declined, so you can convert more shares at a lower market value. Depending on your income situation, a declining market may put you in a lower income tax bracket, give you the chance to take advantage of your conversion income.

Rebalance Your Portfolio

During a large market decline there is a likelihood that your portfolio allocation will look different from your initial intended allocation. This happens because investments will react differently from one another, some declining faster than others. This is a great time to revisit your portfolio and compare it to your initial allocation. If your portfolio has shifted, we can work with you to buy and sell assets to get it back to your intended mixture. This helps ensure that your portfolio is in line with your diversification and risk plans.

Increase Portfolio Contributions

Ideally your financial plan allows you to continually save towards your financial goals. This may happen with recurring contributions to your 401k, IRA, or taxable portfolio. When markets decline, ask yourself if you can increase your savings into some or all of these accounts? While it may seem counterintuitive to buy when the market is down, you can take advantage of any future rebounds in the stock market. If your employer matches 401k contributions, you will also benefit from a large employer match.

Reduce Concentrated Exposure

If you have a large, concentrated exposure to a single stock, but have been hesitant to sell and diversify because of taxes, a market decline may be a wise time to reassess. A decline in stock price means a decline in capital gains and the associated taxes. You may want to consider selling depending on how much the stock has declined. If you are tax-loss harvesting elsewhere in your portfolio, you may want to offset some/all of your associated gains from the sale of your concentrated stock.

Gifting

Consider gifting shares, either directly to individuals or into an irrevocable trust when the market value is low. If you still like the investment and believe it will recover, moving it out of your estate when the value is low is one way to transfer more shares at a lower tax cost.

While the value of your investments might fall during a market decline, historically the markets bounce back over time, resulting in potentially greater gains for investors. Reach out to our team for more financial strategies and support, unusual tax rules may apply.

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Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

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Key Financial Terms 
Related to this Post:

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Rebalance

Adjusting an investment portfolio to realign with the portfolio’s intended allocation.
This is some text inside of a div block.

ROTH IRA

A retirement savings account allowing post-tax contributions. Withdrawals are generally tax-free.
This is some text inside of a div block.

Stocks

Represent ownership in a company. Investors may profit from capital gains and dividends.
This is some text inside of a div block.

Tax Bracket

Income range used to determine the tax rate applied to your income. The higher your income, the higher the tax rate.
This is some text inside of a div block.

Tax Loss Harvest

A strategy that involves selling an underperforming investment to offset capital gains and reduce taxes.

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Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

2020 Brickley Wealth Management. All rights reserved.

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