Susan Dziubinski: Hi, I'm Susan Dziubinski. The recent stock market turbulence hasn't felt very good, but Morningstar's director of personal finance, Christine Benz, has four ideas for how investors can use the downturn to their investing advantage. She's here today with me to discuss them. Christine, thank you for being here.
Benz: Susan, it's great to be here.
Dziubinski: Now, one of the things you've talked about quite a bit in the past, is that there are a lot of things that investors can't control during turbulent markets. But one of the things that we can control is how we're contributing and how much we're contributing to our investment accounts. How should we be thinking about that in this type of market?
Benz: I think that's a really good "take control" strategy, when things are feeling really uncertain--you do control your own savings rate and, so, to the extent that you can add to your contributions during these periods of market weakness that actually amplifies your long-term returns. What one fund manager said is, "You make your money at times like this. You just don't know it at the time." So if you are in the position to increase your contributions, it's a great time to think about doing it. It's not to say that there won't be more turbulence to come. There very well could be, but by increasing your contributions, you're putting more money to work when stocks are down. That's never a bad thing.
Dziubinski: Also, during times of market turbulence, you recommend that there could be some tax saving strategies that we could be pursuing or thinking about. What are those?
Benz: If you have taxable assets, non-tax-sheltered assets, take a look at whether some securities that you purchased at a higher price are now selling it a lower price, you can capture that tax loss. Use the loss to offset capital gains that you might have on your books, or even up to $3,000 in ordinary income. So take a look at that. If you have tax-sheltered assets, traditional IRA specifically--when the market goes down, that tends to be a better time to convert those traditional IRA assets to Roth. Because the taxes that you'll owe are based on that lower balance. So that's another thing to consider. Definitely get some tax advice with either strategy, but those can be a way to kind of make a save in a difficult market.
Dziubinski: Now, you noted in the past that volatile times are actually a really good time to check up on your asset allocation. But let's say that the market is sort of falling. Is that really a time to tweak our asset allocation?
Benz: Well, it may be. And so I think what you really want to be thinking about is your time horizon. If you're a younger investor, many years to retirement, probably don't even look at what plan that you've laid, unless you were really conservative for some reason. But if you are getting close to retirement, even though the market has come down a little bit, I still think it's a good time to get in there. Take a look at your asset allocation, especially if you're within like five to 10 years of retirement. See what your allocation to safe securities looks like. If you haven't done anything, it may be lower than, in fact, what it should be.
Dziubinski: And the last point is, the Federal Reserve lowered the fed-funds rate by 50 basis the other day. And while that's bad news for owners of some safe assets looking for yield, that is good news for borrowers. So what should borrowers be thinking about?
Benz: A couple of things. If you have a mortgage, you may consider refinancing. You may be able to refinance at a lower rate or even go to a shorter term, where they're typically lower rates available. So check that out if you still have a mortgage. Also, think about mortgage paydown. So accelerating your mortgage payments, especially if you intend to stay in your home. And the basic reason you'd consider doing that is, look at the yields on safe securities. As you said, Susan, they're really low. Your mortgage interest rate is probably higher than that. So retiring your debt may be a better use of your funds.
Dziubinski: Christine, thank you so much for joining us today. These are a lot of great practical things that we can be doing today in this market uncertainty.
Benz: Thank you, Susan.
Dziubinski: I'm Susan Dziubinski from Morningstar. Thank you for tuning in.
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