By Cory Cuffley, CFP®, CPA, CRPS®, AIF®

The current global pandemic that is COVID-19 has brought many aspects of our daily lives under the microscope. As the world continues to adjust to the threat of the virus, things such as our product supply chains and healthcare system have been put to the test. Many people have seen their jobs change forever or disappear entirely.

Despite some optimism about vaccines in the testing phase and a flattening of the curve in many regions, a very real fear exists that we have not seen the last of COVID-19. This fear has led to a lack of certainty within the financial world, and if there is one thing that the markets do not like, it is uncertainty.

As a result, the world’s financial markets have experienced significant volatility through the first five months of 2020 — market volatility the likes of which many investors have not seen in the past 10 years and, in some respects, have never seen before.

The roiling market has left many people wondering: Should I be taking action? As with most things in life, the answer is, it depends. Each individual is different and is at a different point in their lives. With that comes potential opportunities but also potential risks. Before making any move in this type of market, some things to consider are:

  • How close are you to retirement?
  • What is your risk tolerance?
  • What are your financial goals?
  • What is your current cash flow?
  • What is your current debt and savings?

All of the questions above are incredibly important to think about when determining whether you should or can take action. Now, with the appropriate considerations taken into account, what are some actions you can take in a volatile market?

  1. Stay in the market
    A common reaction for most people when they see the markets behave this way is to exit the market entirely. That instinct to protect what you still have can lead to a situation where your funds do not have the opportunity to rebound. A common expression in the financial industry is, “It’s not a loss until you sell.” Stay calm and give your accounts the opportunity to come back.
  2. Take losses in taxable accounts
    Ten years of a bull market has allowed many individuals’ accounts to accumulate substantial gains. Taking advantage of these depressed values to harvest losses can be a great way to offset the impact of those gains.
  3. Rebalance your portfolio
    As the markets fluctuate, so, too, do your portfolio allocations. For example, a 75/25 portfolio before the decline could very well be at 65/35 today. Consider reallocating back to your appropriate allocations.
  4. Increase contributions to Retirement accounts, 529 plans, etc.
    With declining market values come buying opportunities. Increasing contributions today to accounts with market exposure will allow you to buy more units or shares of each fund than before. Once the markets rebound, you’ll be in a much more advantageous spot.
  5. Fund a Roth or perform a Roth Conversion
    Contributions to Roth accounts are taxed today. Provided you meet the requirements to do so, distributions can be tax free. This includes both the contributions and the growth. Taking advantage of the lower market values and allowing these to grow potentially tax free over your lifetime can be a tremendous planning tool. Likewise, a Roth Conversion involves converting a pretax account to a Roth account. The account will, of course, be subject to tax upon conversion. But with the markets falling, you may have an opportunity to take advantage of the declining values and pay less tax than before.
  6. Accelerate 401(k) loan payoffs
    As mentioned previously, contributions today will buy in at lower values than in recent years. Loan payments are buying into the market, so accelerating these payments will take advantage of the lower values as well as get rid of some debt sooner.

Individuals with 5 years or less until retirement

Individuals with 5 years or less until they enter retirement and begin to consume their retirement funds need to be particularly cautious. With a shorter period of time to allow investments to rebound from a market decline, these individuals can see an erosion of their accounts at a very inopportune time. We encourage individuals who fit into this demographic to:

  1. Meet with a financial professional to do a cash-flow analysis
  2. Keep 2-plus years of your portfolio income needs in cash or liquid investments
  3. Revisit your investment portfolio allocations annually
  4. Pay down or pay off any outstanding debts

Guidance is Available in Tough Times

No one in the world can time the markets perfectly. Even the greatest investors will miss opportunities. As the political and financial landscape of our country changes, so, too, will the laws and regulations that bind us. The best thing individuals can do is to understand the situation they are in and do the best with what they are given.

As always, if you have any questions or need assistance with anything mentioned in this article, the friendly advisors at Stonebridge Financial Group are here to help.


Cory CuffleyCory’s primary responsibilities include working with the firm’s corporate retirement plan clients, providing participant education, and business development. He holds a master’s degree in Accounting and Professional Consultancy, and recently was honorably discharged as a member of the Pennsylvania Army National Guard. Cory enjoys spending time with his wife Megan, their daughter Claire, and their two dogs.