Brezik: Bear markets present opportunities | Columns

Stock markets have corrections. If you are an investor, you should expect losses. This is a normal part of investing and hopefully your long term plan incorporates this risk.

So far in 2022, equities and fixed income securities have posted declines, while some alternative investments have performed very well. Depending on your portfolio structure and the types of accounts you hold, look for opportunities in these bear markets.

If you have investments in taxable accounts, reap your losses for tax purposes. No one wants to pay more income tax than necessary. Harvesting at a loss is a way to save on taxes this year and maybe in the years to come. Make sure your cost base records are up to date. If the value of an investment has fallen below its tax base, which is the original cost plus reinvested dividends, you can sell the investment and claim a capital loss. You can use capital losses to offset capital gains this year. Specifically, you can deduct $3,000 of net capital losses currently, with any remaining net losses carried forward to future years. These losses do not expire and allow you to offset gains in the future.

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You can immediately take the proceeds from the sale and reinvest it in a similar investment, keeping you in the market. You cannot buy identical or substantially identical securities within 30 days before or after your sale to realize capital losses.

This is also the time to rebalance your portfolio to get back to your desired asset allocation. Diversifying your investment portfolio means building a mix of stocks, bonds, and other investments that take into account your financial goals, time horizon, and risk tolerance. Your mix is ​​called your asset allocation. The idea behind diversification is that, overall, owning different types of investments should earn you higher returns with less risk than owning an individual investment.

Each investment in your portfolio will increase or decrease in value at varying rates, changing your asset allocation. Asset classes, or groupings of similar types of investments, will have months, years or even decades when they outperform or underperform other asset classes. Examples of major asset classes are stocks or stocks, bonds or fixed income investments, and real estate or other tangible assets. Each major asset class can be further categorized. For example, stocks can be divided into large cap, small cap, US (domestic), international, growth, value, and others.

As you should know, investment results can change quickly, although low market volatility has spoiled many investors in recent years. This year, volatility has increased, causing investors to worry about what might happen from here. It’s human nature to want to believe that someone can predict short-term market movements. But that is impossible and spending time trying to guess the market is not productive. Instead, look for opportunities in your portfolio. Harvest those available tax losses and rebalance your portfolio. And if you have spare cash, buying when prices are falling should reward you in the future when markets recover. It’s much more productive and could turn this year’s market correction into something good.

For educational purposes only and should not be construed as legal advice. Connie Brezik is a Casper-based wealth advisor at Buckingham Strategic Wealth. If you have a question or topic of interest that you would like to see covered in this monthly column, please email him at cbrezik@buckinghamgroup.com.

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