Spotlight: Seven Considerations For Market Volatility
Market volatility is normal, and it can present opportunities for investors with cash on the sidelines. Consider the following seven approaches we think investors can benefit from.
• Revisit your plan: Use this period of market volatility as an opportunity to revisit a comprehensive wealth plan. This can help ensure that financial goals are clearly defined and aligned with your long-term objectives. When portfolios are properly aligned with intent, it is likely they are also designed to withstand this type of volatility.
• Rebalance your portfolio: Review and rebalance portfolios to maintain your strategic asset allocation. Equities have pulled back and fixed income has rallied, which may result in unwanted drift.
• Put idle cash to work: Using stock market pullbacks to increase equity exposure can be a prudent strategy. Average returns for the S&P 500 12 months after a 5% pullback are nearly 12%, and markets are higher nearly 75% of the time.
• Lock in yields: Treasury rates are falling fast now that it seems likely the Fed will cut rates. Tax-equivalent yields in municipal bonds for most taxpayers are still above 5%, but they may not be there for long. History suggests that if you invest one month before the Fed starts cutting, average 12-month returns in municipal bonds are over 300 bps higher than if you waited until one month after the first cut.
• Tax-loss harvest: Investors don’t have to wait until December. Consider offsetting gains and reducing your tax burden. This can be particularly effective during periods of market downturns. Investors can also explore using managers that actively manage tax losses on an ongoing basis.
• Transfer assets and consider paying taxes now: Moving assets off your personal balance sheet can be more tax-efficient when they have depreciated. Future appreciation of these assets would occur outside of your estate, potentially reducing estate taxes.
• Keep things in perspective: The stock market has returned nearly 12.5% this year and has sold off by 6% from prior all-time highs. The average year that ends with a gain comes with an 11% peak-to-trough drawdown. The cost of outsized returns from equity markets is this type of volatility.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: J.P. Morgan Private Bank, August 2nd 2024, 7 Considerations to Make the Most of Market Volatility, by Jacob Manoukian, Head of U.S. Investment Strategy, J.P. Morgan Private Bank
