Five Ways To Make Lemonade Out Of A Lemon Market

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
Rick Ferri
Posts: 9053
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Five Ways To Make Lemonade Out Of A Lemon Market

Post by Rick Ferri » Mon Mar 09, 2020 5:20 pm

There are a few silver linings in a down market.

Five Ways To Make Lemonade Out Of A Lemon Market

Here are five ways to take advantage of lower stock prices:

1. Tax-loss harvest.
2. Convert stocks and active funds in taxable accounts to total market funds.
3. Rebalance your portfolio.
4. Make your 2019 IRA and Roth IRA contributions today.
5. Do a Roth conversion.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

runner3081
Posts: 2889
Joined: Mon Aug 22, 2016 3:22 pm

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by runner3081 » Mon Mar 09, 2020 5:29 pm

Umm, #1 = Continue investing as-is and don't listen to the noise.

User avatar
Topic Author
Rick Ferri
Posts: 9053
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Rick Ferri » Mon Mar 09, 2020 5:55 pm

runner3081 wrote:
Mon Mar 09, 2020 5:29 pm
Umm, #1 = Continue investing as-is and don't listen to the noise.
That's what I'm recommending in 1-5. In addition, I recommending taking advantage of the current downturn to lower your investment cost, increase diversification, reduce speculation, and add value through tax-loss harvesting and swapping.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

Explorer
Posts: 365
Joined: Thu Oct 13, 2016 7:54 pm

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Explorer » Mon Mar 09, 2020 5:56 pm

I am continuing to invest in the widgets I own - buying them at lower prices than before...

User avatar
asset_chaos
Posts: 1749
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by asset_chaos » Mon Mar 09, 2020 6:33 pm

I haven't yet felt the urge to do any investing activitiy since the usual January review and rebalance. But I keep both stocks and bonds in an IRA partly so that if I ever do feel an uncontrollable urge to "do something", I can scratch that itch with a rebalance in the IRA. I figure a small, costless rebalance is among the least damaging investing activities that I could blunder in to.
Regards, | | Guy

treadingwater
Posts: 42
Joined: Sun Sep 02, 2018 6:01 pm
Location: Midwest

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by treadingwater » Mon Mar 09, 2020 10:47 pm

Thank you Rick for those suggestions! Excellent advice as always!!

User avatar
Cubicle
Posts: 639
Joined: Sun Sep 22, 2019 1:43 am

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Cubicle » Mon Mar 09, 2020 11:33 pm

For everyone who "needs" to do something. "Because I can't just stand here, have you been paying attention???"

At least this occupies the time & mind of those who must act...
"Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be.

vasu100
Posts: 79
Joined: Sat Mar 31, 2012 7:46 am

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by vasu100 » Mon Mar 09, 2020 11:45 pm

asset_chaos wrote:
Mon Mar 09, 2020 6:33 pm
I haven't yet felt the urge to do any investing activitiy since the usual January review and rebalance. But I keep both stocks and bonds in an IRA partly so that if I ever do feel an uncontrollable urge to "do something", I can scratch that itch with a rebalance in the IRA. I figure a small, costless rebalance is among the least damaging investing activities that I could blunder in to.
That describes me as well. In fact I converted 5K from BND to VXUS is my rollover IRA this morning when the market was down ~1600. Felt super-smart for a few hours. Then market closed down ~2100 I realized I would have been better off not converting. Felt super-smart because I only did this with 5K and not 50K or 500K.

And I learned (again !) that I am not lucky enough to market-time and win. 5K is my “gambling limit” !!

rossington
Posts: 550
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by rossington » Tue Mar 10, 2020 4:14 am

Rick Ferri wrote:
Mon Mar 09, 2020 5:20 pm
There are a few silver linings in a down market.

Five Ways To Make Lemonade Out Of A Lemon Market

Here are five ways to take advantage of lower stock prices:

1. Tax-loss harvest.
2. Convert stocks and active funds in taxable accounts to total market funds.
3. Rebalance your portfolio.
4. Make your 2019 IRA and Roth IRA contributions today.
5. Do a Roth conversion.

Rick Ferri
Rick, with all due respect don't #1 and #2 go against "stay the course" in this volatility? Even rebalancing may be premature if things reverse as we know they can with lightning fast institutional trading. It may be best to wait until the dust settles.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

User avatar
Aptenodytes
Posts: 3767
Joined: Tue Feb 08, 2011 8:39 pm

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Aptenodytes » Tue Mar 10, 2020 4:53 am

rossington wrote:
Tue Mar 10, 2020 4:14 am
Rick, with all due respect don't #1 and #2 go against "stay the course" in this volatility? Even rebalancing may be premature if things reverse as we know they can with lightning fast institutional trading. It may be best to wait until the dust settles.
It depends on your course, doesn't it?

Rick would say that tax-loss harvesting (#1) and using index funds instead of active funds (#2) should be part of the course you want to stay on, which is why he included them and why I agree with them.

However, believing you can know when the dust settles and therefore should hold back from rebalancing following an 18% drop only counts as staying the course if your course calls for market timing, which Rick would recommend against (and I'd agree with him).

The temptation to believe you can know when the dust settles, or more generally that you can know when it is premature to rebalance, is one of the reasons behind the recommendation to have a written plan. In times like these it can be very hard to have confidence in your strategy. But we know that these are the worst times to start calling audibles.

rascott
Posts: 1715
Joined: Wed Apr 15, 2015 10:53 am

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by rascott » Tue Mar 10, 2020 5:16 am

rossington wrote:
Tue Mar 10, 2020 4:14 am
Rick Ferri wrote:
Mon Mar 09, 2020 5:20 pm
There are a few silver linings in a down market.

Five Ways To Make Lemonade Out Of A Lemon Market

Here are five ways to take advantage of lower stock prices:

1. Tax-loss harvest.
2. Convert stocks and active funds in taxable accounts to total market funds.
3. Rebalance your portfolio.
4. Make your 2019 IRA and Roth IRA contributions today.
5. Do a Roth conversion.

Rick Ferri
Rick, with all due respect don't #1 and #2 go against "stay the course" in this volatility? Even rebalancing may be premature if things reverse as we know they can with lightning fast institutional trading. It may be best to wait until the dust settles.
We see posts all the time that people would like to move into index funds, but they have a large cap gain in whatever they are currently in. Seems a perfect time to make that change.

User avatar
Topic Author
Rick Ferri
Posts: 9053
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Rick Ferri » Tue Mar 10, 2020 9:55 am

I created a follow-up article on this:

'Tis The Season To Be Tax-Loss Harvesting

BTW, some say this strategy goes against "stay the course". I disagree. Saving on income taxes does not go against the Bogleheads philosophy.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

Scooter57
Posts: 1320
Joined: Thu Jan 24, 2013 9:20 am

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Scooter57 » Tue Mar 10, 2020 10:11 am

What is the point of making last year's RMD when your account balance has dropped? The amount won't change as it is based on the 2018 year end balance.

User avatar
Topic Author
Rick Ferri
Posts: 9053
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Rick Ferri » Tue Mar 10, 2020 10:28 am

Scooter57 wrote:
Tue Mar 10, 2020 10:11 am
What is the point of making last year's RMD when your account balance has dropped? The amount won't change as it is based on the 2018 year end balance.
Doing a Roth conversion doesn't have anything to do with your RMD amount and was not one of my 5 suggestions.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

theorist
Posts: 321
Joined: Sat Sep 28, 2019 11:39 am

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by theorist » Tue Mar 10, 2020 10:59 am

Rick Ferri wrote:
Mon Mar 09, 2020 5:20 pm
There are a few silver linings in a down market.

Five Ways To Make Lemonade Out Of A Lemon Market

Here are five ways to take advantage of lower stock prices:

1. Tax-loss harvest.
2. Convert stocks and active funds in taxable accounts to total market funds.
3. Rebalance your portfolio.
4. Make your 2019 IRA and Roth IRA contributions today.
5. Do a Roth conversion.

Rick Ferri

Thanks, a useful reminder! I got out of two active funds and into two index funds (one international fund into VTIAX, one active growth fund into VMGMX). No further tinkering required in the future, since with an index fund, there is no room for regret — you track what you wanted.

Jack FFR1846
Posts: 11282
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by Jack FFR1846 » Tue Mar 10, 2020 1:52 pm

Along with tax loss harvesting, I have wanted to convert from one ETF to a stock, but was not willing to take a tax hit to do it. Perfect conditions today to sell those ETF shares that would generate a loss and buy the stock that follows the same curve down as the ETF.
Bogle: Smart Beta is stupid

mhalley
Posts: 8055
Joined: Tue Nov 20, 2007 6:02 am

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by mhalley » Tue Mar 10, 2020 9:03 pm

If you don’t need the RMD for income, moving it to taxable at a lower market value allows you to buy more shares of total market etc.

User avatar
WoodSpinner
Posts: 1262
Joined: Mon Feb 27, 2017 1:15 pm

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by WoodSpinner » Tue Mar 10, 2020 10:27 pm

mhalley wrote:
Tue Mar 10, 2020 9:03 pm
If you don’t need the RMD for income, moving it to taxable at a lower market value allows you to buy more shares of total market etc.
Not sure at follow the logic....

If you don’t need it for income, take the RMD in-kind and just move the shares.....

sawdust60
Posts: 281
Joined: Tue Jul 17, 2018 12:06 pm

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by sawdust60 » Wed Mar 11, 2020 11:55 am

It could a good time to review where you hold what. I have some MM in my Roth. But I find myself trying to time the market. Are there any restrictions on selling VTSAX in IRA and simultaneously purchasing in Roth?

bpg1234
Posts: 158
Joined: Fri Jun 24, 2011 6:53 pm

Re: Five Ways To Make Lemonade Out Of A Lemon Market

Post by bpg1234 » Wed Mar 11, 2020 5:29 pm

sawdust60 wrote:
Wed Mar 11, 2020 11:55 am
It could a good time to review where you hold what. I have some MM in my Roth. But I find myself trying to time the market. Are there any restrictions on selling VTSAX in IRA and simultaneously purchasing in Roth?
I did this at the end of 2019 with my TIRA to Roth mutual fund conversion at Vanguard. I exchanged MM in my Roth to VTSAX and then sold VTSAX in my TIRA in a separate transaction as both transactions occur at close of business day and price. The only problem is I needed to wait 30 days before I could buy VTSAX back on the TIRA end since I sold.

Post Reply