{"id":1118,"date":"2023-12-18T06:00:00","date_gmt":"2023-12-18T06:00:00","guid":{"rendered":"https:\/\/scottmarsh.com\/?p=1118"},"modified":"2023-12-15T20:15:40","modified_gmt":"2023-12-15T20:15:40","slug":"how-to-survive-a-downturn-effective-tax-planning-investment-tactics","status":"publish","type":"post","link":"https:\/\/scottmarsh.com\/tax-planning\/how-to-survive-a-downturn-effective-tax-planning-investment-tactics\/","title":{"rendered":"How to Survive a Downturn: Effective Tax Planning & Investment Tactics"},"content":{"rendered":"\n

As Utah<\/strong><\/a> financial planners<\/strong><\/a>, one of the most frequent questions or concerns we discuss with the people we meet is market volatility and the impact a potential 2024 recession could have on their retirement savings and plans.\u00a0\u00a0<\/p>\n\n\n\n

The good news is that there are tax planning and investment tactics you can take today to protect your hard-earned savings if there is a significant market correction in the coming months.  <\/p>\n\n\n\n

In this article, we\u2019ll look at four of the tactics:<\/p>\n\n\n\n

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  1. Asset location<\/li>\n\n\n\n
  2. Tax loss harvesting<\/li>\n\n\n\n
  3. Strategic retirement account contributions<\/li>\n\n\n\n
  4. Applying behavioral finance principles to your retirement planning <\/li>\n<\/ol>\n\n\n\n

    There is a bottom line: You need a tailored financial strategy to manage your wealth’s complexities to make smart, informed decisions aligned with your long-term financial goals. <\/p>\n\n\n\n

    Investment Tactic #1: Location, Location: Position Your Investments to Minimize Taxes. <\/strong><\/h2>\n\n\n\n

    Asset location is a strategic approach to managing your investments that focuses on minimizing taxes. It involves contributing assets to different accounts to take advantage of their tax treatment. By strategically placing assets in tax-deferred, tax-free, and taxable accounts, you can navigate volatile markets more tax-efficiently, thereby preserving more of your wealth for your future use.<\/p>\n\n\n\n

    An asset location strategy aims to minimize taxes and maximize after-tax returns. <\/p>\n\n\n\n

    Here’s how it works:<\/p>\n\n\n\n

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    1. As<\/strong><\/a>set location<\/strong><\/a> involves strategically placing investments in accounts with different tax consequences. For example, tax-efficient investments, like index funds with lower turnover, are typically placed in taxable accounts, so you benefit from lower capital gains taxes.<\/li>\n<\/ol>\n\n\n\n
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      1. Assets that generate increased taxable income, such as bonds or higher dividend stocks, should be invested in tax-deferred accounts like IRAs or 401(k)s. This shields the income from immediate taxation.<\/li>\n<\/ol>\n\n\n\n
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        1. Your portfolio(s) should be rebalanced periodically based on original asset allocations. During market downturns, this becomes crucial. By selling appreciated assets in tax-advantaged accounts and buying undervalued assets in taxable accounts, you can offset capital gains and potentially reduce tax liabilities.<\/li>\n<\/ol>\n\n\n\n

          Remember, it’s not just about the returns you earn but also about how much you keep after paying applicable taxes.<\/p>\n\n\n\n

          Investment Tactic #2: Tax Loss Harvesting<\/strong><\/h2>\n\n\n\n

          Tax lo<\/strong><\/a>ss harvesting<\/strong><\/a> is another strategic investment tactic that can be particularly useful during market downturns because it enables you to use portfolio losses to offset gains.\u00a0<\/p>\n\n\n\n

          Here’s how tax loss harvesting works:<\/p>\n\n\n\n

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          1. Identify investments that have declined in value since your original purchase. <\/li>\n\n\n\n
          2. You sell these assets to realize the losses. Then, proceeds from the sale are reinvested into securities on your buy list.<\/li>\n\n\n\n
          3. The capital losses generated from selling these assets are used to offset any capital gains within the portfolio. This reduces your taxable gains bill and, consequently, your overall tax bill.<\/li>\n\n\n\n
          4. If the losses exceed the gains, you can use the remaining losses to offset future gains in subsequent tax years.<\/li>\n<\/ol>\n\n\n\n

            This tactic is a valuable tool for long-term financial planning in and can contribute to improved overall portfolio performance.<\/p>\n\n\n\n

            Investment Tactic #3: Diversification<\/strong><\/h2>\n\n\n\n

            Investment diversification is crucial, particularly in particular during market downturns.<\/p>\n\n\n\n

            Diversifying your investments across various asset classes, such as stocks, bonds, and real estate, can help spread your risk. Instead of putting all your eggs in one basket, you invest them in multiple baskets. <\/p>\n\n\n\n

            When one asset class experiences a downturn, others may perform better, reducing the overall impact on your portfolio. <\/p>\n\n\n\n

            During market downturns, the preservation of your retirement capital becomes paramount. Diversification reduces downside risk and creates opportunities in different sectors or industries that may perform better in a broad market decline.<\/p>\n\n\n\n

            Diversification is a long-term strategy that can help your portfolio produce better returns for less risk. <\/p>\n\n\n\n

            Investment Tactic #4: Make Informed vs. Emotional Decisions<\/strong><\/h2>\n\n\n\n

            Behavioral finance examines how our psychological biases and emotions influence our financial decisions. At Scott Marsh Financial, we utilize behavioral finance as a way for you to make informed, disciplined decisions, in particular during volatile market conditions. <\/p>\n\n\n\n

            Here are ways that behavioral finance can help protect your wealth, especially during a market downturn due to a 2024 recession:<\/p>\n\n\n\n