COVID-19 Crashed The Market, Now What Should I Do?
The effects of Coronavirus have hit the global economy like a bullet. Across the country—and the world—people are asking the same questions when it comes to their assets: what should I do?
While we’re encouraging everyone to be patient and avoid panic-selling everything and knee-jerk reactions, there are a few ways you can take advantage of the current state of the market and create opportunities for your financial future.
Convert to a Roth Account*
I’ve said this before, but tax rates in the U.S. are as low as they’ll ever get. And, with the multi-trillion-dollar aid package being proposed that will need to be paid back in the future, tax rates are about to skyrocket.
With the low tax rates and—thanks to the market’s violent nosedive—low balances, now is the perfect time to convert current 401(k)s and IRAs to Roth accounts. Once it’s converted, the new balance can grow with the upcoming market rebound without having to be taxed later.
However, make sure you have the cash available to cover those taxes when due. Do not take a withdrawal from this account to pay those taxes.
Take a cash withdrawal from a line of credit.
We learned in 2008 that in times of economic crisis, you don’t want all of your capital to be reliant on the health of credit markets. You want to have cash.
If you have lines of credit available (whether home equity, securities-backed, life insurance cash value or similar), consider taking some of the money from that line and storing it in cash in the bank. If we see another credit crisis like we did a decade ago, lines of credit may be frozen and inaccessible. While you’re able to access it—and while interest rates are low—take out the cash and pay it back once everything returns to normal.
Consider a reverse mortgage or a cash-out mortgage.
Property values and appraisals are still relatively high across the country. If we are heading into a global recession, housing prices will fall and you will not have the same access to your equity. This is a good time to lower your bills, or potentially consider a cash-out refinance to secure cash on the sidelines.
If you are retired or contemplating retiring soon and need equity from your home, this could be a good time to do a reverse mortgage. These may be available if the youngest person on the deed of your primary residence is at least age 62.
For younger homeowners, since interest rates are historically low, if you have a good credit score and can access capital, it might be a good time to increase the amount of your mortgage while lowering your interest rate and putting some extra cash in your bank account.
These strategies are certainly not for everyone, so talk to your financial advisor or mortgage broker to guide you through the pros and cons.
Talk to a financial planner, but don’t make a financial plan.
If you have a financial planner and you want to talk to them about your current plan and assets, do it. That’s what they’re there for.
But if are contemplating a new advisor or realizing you should’ve had one to begin with, do not spend money on a full plan right now. Any planning that gets done now is going to be based on values that are jumping around too much every day to be useful. It’s okay to seek out an advisor and talk about asset management, debt management, and tax strategies for the future, but wait until this all blows over before you start working on a full financial plan.
While the local news may be focusing on a lot of negatives in the world today, it’s important to find the positives. Low tax rates, smaller balances and high home values can lead to opportunities that may position you well once this crisis ends. Consider these suggestions and if you have an advisor, talk to him/her about how they can work for you.