Spotlight: Seven considerations on market volatility

Market volatility is normal and can create opportunities for investors with cash reserves. Consider the following seven approaches that we believe can benefit investors.

• Check your plan: Use this period of market volatility as an opportunity to revisit a comprehensive wealth plan. This can help ensure your financial goals are clearly defined and aligned with your long-term goals. If portfolios are properly aligned with your intentions, they are also likely designed to withstand this type of volatility.

• Rebalance your portfolio: Review and rebalance portfolios to maintain your strategic asset allocation. Equity prices have declined and fixed income has gained, which can lead to unwanted deviations.

• Put unused cash to work: Taking advantage of stock market declines to increase equity exposure can be a smart strategy. The average return for the S&P 500 is nearly 12% 12 months after a 5% decline, and markets are above year-ago levels nearly 75% of the time.

• Secure returns: Treasury yields are now falling rapidly as a Fed rate cut looks likely. Tax-equivalent yields on municipal bonds are still above 5% for most taxpayers, but that may not last much longer. Experience shows that average 12-month municipal bond yields are over 300 basis points higher if you invest one month before the Fed begins cutting rates than if you wait until one month after the first rate cut.

• Tax loss harvesting: Investors don’t have to wait until December. Consider offsetting gains and reducing your tax burden. This can be particularly effective during periods of declining markets. Investors can also consider working with managers who actively manage tax losses on an ongoing basis.

• Transfer assets and think about paying taxes now: Separating assets from your personal balance sheet can be more tax efficient if they have lost value. Any future increase in the value of those assets would occur outside of your estate, potentially reducing inheritance tax.

• Keep an eye on things: The stock market has returned nearly 12.5% ​​this year, and is down 6% from previous all-time highs. An average year that ends with a gain involves a decline of 11% from peak to trough. The price of above-average returns in the stock market is this kind of volatility.

Rick Barragan is the Managing Director,
Market Manager in Los Angeles for JP Morgan Private Bank.
(email protected) | (310) 860-3658
privatebank.jpmorgan.com/los-angeles

Source: JP Morgan Private Bank, August 2, 2024, 7 Considerations to Make the Most of Market Volatility, by Jacob Manoukian, Head of U.S. Investment Strategy, JP Morgan Private Bank