Finding Opportunities in a Crisis
The Covid-19 worldwide pandemic has generated and will continue to generate negative health, economic, and social tolls to our society and world. However, even bad times can create some good for those who are both optimistic and opportunistic. Here are some of the unique opportunities which the Covid-19 pandemic presented to advisors, investors and homeowners with the discipline to take advantage of this unique window of time.
Buy at Discount: Those who followed Warren Buffett’s advice to “be greedy when others are fearful” and committed new capital have seen exceptional returns in the year since.
Rebalance: Portfolios designed to reflect a certain stock-to-bond ratio were significantly out of balance this time last year. The investment discipline to rebalance to those pre-determined ratios produced some excellent returns at relatively low levels of risk.
Tax-Loss Selling: If you have a taxable account there were opportunities in 2020 to sell positions at a loss and then buy a close proxy. This gave tax benefits of “taking losses” to reduce future income and capital gains with little to no change in expected returns over time.
Roth Conversions: Converting traditional IRA accounts to Roth IRA’s can save you money on taxes in retirement but generates taxes when done. March and April of 2020 provided a nice window for doing those conversions while paying a minimal amount in taxes.
Refinance: Generally, when stock markets tank, investors make a “flight to quality” buying low risk government bonds. This makes interest rates go lower than prior to the crisis. Current interest rates for 30-year fixed mortgages are around 3.25%. There's still an opportunity for many to refinance and be better off...
Don’t kick yourself for missing these opportunities during 2020 - but remember that future crises produce opportunities. Unfortunately, it doesn’t take a soothsayer to predict we will have plenty of opportunities in the future to use these tools to improve your family’s financial circumstances – so don’t miss these the next time!