Three steps to survive and capitalize on the bear market swings. This summary will help to take advantage of reduced taxes, reinvest your money, and clean out all the junk in your investments.
First, see the collapse and if your profits are now losses it is time to sell. Sell your losses and note your losses so you may recoup a tax benefit up to $3000. Then when the dramatics of the bear market seem more level now it is time to act. Look for Total Stock Market Index following funds like VIT – Vanguard Index Fund. When it’s time to invest into a different fund do it incrementally and consistently. This is because the more the market drops the more stocks you will be able to buy. Conversely if the market climbs you would have your money already for you. This idea has been coined dollar-cost averaging by Benjamin Graham; author of Intelligent Investor and Security Analysis.
Second it is wise to covert your 401k holding into a Roth IRA. This is because you will pay less taxes. The difference between a Roth IRA and a 401k is that the Roth funds get taxed prior to the investment. This works excellent when the market is depressed because you will be taxed less on your holdings. There is no penalty to convert from a 401k to a Roth IRA and there is a 5,500 yearly maximum of conversion. When it time to collect funds from the Roth IRA they will be tax free.
Third you may sell your dog deals. It seems Gordon Gecko from the movie Wall Street played by Micheal Douglas dubbed this term as companies that you do not care to follow. This is the chance to release them without getting slammed on a capital gains tax bill. This is the time to clean up your portfolio. Like fasting to reestablish your good gut bacteria, a bear market is the time to reestablish your good security holdings.
Three steps will help you survive and capitalize on a bear market. Always take advantage of a depressed market because market shifts are irrationally dramatic. Be optimistic during bear markets because all the stock are now on sale and up for grabs.