May 26, 2022 4 min read

The stock market has been on a wild ride since the beginning of the year.

Most big tech stocks are in bear market territory, which is described as being down at least 20% from their highs. Last week, the S&P 500 may have hit bear territory, too. Some economists argue that the exchange just hit 20% in a day and did not close at that level. Others argue it happened mid-day. It does not matter who is right, it has been a rough five months for stock investors.

This volatility should not come as a surprise to anyone.

We had been on a 12-year long bull market if you discount the short blip at the beginning of the pandemic in March 2020. The government pumped huge amounts of stimulus money into the economy, and we began having disruptions in the supply chain. The Federal Reserve was way too slow to start to tighten the money supply. As a result of these things, inflation exploded to a 40-year high. To make matters even worse, Putin invaded Ukraine.

The financial world is a mess.

Many people are concerned about what they can do to stabilize their families’ financial lives. The answer depends on the stage of the money cycle in which you are living. When people have several decades of work ahead before reaching retirement, they are in the accumulation phase of the money cycle. They are building credits for Social Security and possibly a pension. It is important to manage debt and try to accumulate assets. Ideally, these assets will be a combination of different asset allocations and tax status. Too many people end up with almost all of their assets only in qualified accounts such as 401(k) and IRA. This can cause a later tax nightmare. When you have a number of years to work, you can often take more risk with investments if they match your timeline.

People who are retired or close to retirement are in the distribution phase. All of the rules shift 180 degrees from your working years. You must pay taxes when you take money out of an IRA instead of getting an income tax deduction for making a contribution. Most people become less risk tolerant as they become older. You do not have time to recover losses. If you suffer big losses early in or right before retirement, sequence of returns risk could wipe out your retirement savings.

If you are close to retirement now and want to protect your family, there are some steps you can take. Evaluate your asset allocation to make sure that it is appropriate for your risk tolerance and timeline. Do not expect everything in the economy to be resolved quickly. It is often better to make more conservative choices and reduce risk.

Make sure that you have risk management steps in place and try to reduce debt. The Federal Reserve System will be raising interest rates and this will make most debts cost more. While it is important to have emergency money in the bank, many people have way too much money in banks and money markets. When inflation is over 8%, having too much money in savings accounts is losing money safely.

It may be a good time to harvest some tax losses and gains or consider a Roth conversion. When the stock market value is down, these actions may save on taxes. Be tax proactive. While there are many things that we have little control over during difficult financial times like now, there are positive actions that will help your family.

Be careful and put your family in the best position possible.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.