Recovery Plan Can Keep You Moving Toward Financial Goals


Over the past couple of years, we’ve had a long bear market and a period of low interest rates.

Consequently, it’s been tough for stockowners and income-oriented investors. If you fall into either of those groups, and most people do, you may be wondering what to do.

You can’t control market volatility or the movement of interest rates. But you can create a recovery plan that will allow you to make the best of your situation and in the process, make progress toward your financial goals.

What, specifically, can you do? Here are some suggestions:

• Put your losses to work. Your investment losses are tax-deductible, to a point. You can use your capital losses to offset any capital gains you have, plus up to $3,000 of other income, including earned income.

So, for example, if you realized a $1,000 capital gain this year from selling stocks or other appreciated investments, you could write off up to $4,000 in losses. And you can carry forward any excess losses to future years.

• Rebalance your portfolio. Your investment portfolio may have become unbalanced and you might not even be aware that it happened. If your stocks have declined sharply, then bonds or other fixed-income instruments may now make up a larger percentage of your portfolio’s total value than you had originally intended. Consequently, you could be losing out on growth opportunities, which is why you’ll need to rebalance your holdings to match your individual risk tolerance, goals and time horizon.

• Stabilize your investment income. What should you do with your bonds or certificates of deposit that mature when market interest rates are low? You could park the funds in a money market account until interest rates rise again, but that might take a while and in the meantime, you will have almost certainly missed out on some better opportunities.

You may be better off by building a bond ladder. To create a bond ladder, you invest in an array of short, intermediate and long-term, high-quality bonds.

When rates are rising, you use the proceeds from your maturing bonds to buy new bonds at the higher levels. When market rates are falling, you’ll continue to benefit from the higher rates offered by your longer-term bonds.

Over time, a well-structured bond ladder can help you stabilize the income you receive from your fixed income portfolio.

• Swap for quality. Over the long term, high-quality investments such as stocks of well-run companies with solid business plans will reward investors more than investments that run hot and cold.

Look through your portfolio for opportunities to replace lower-quality investments for higher-quality ones that may now be attractively priced.

• Be a tax-smart investor. Taxes can significantly erode your overall investment returns. That’s why you need to look for tax-advantaged vehicles.

Take full advantage of tax-deferred instruments, such as your 401(k) and traditional IRA. You can get tax-free earnings growth from a Roth IRA, provided you meet certain conditions. Depending on your tax bracket, you may also be able to benefit from municipal bonds, whose interest is exempt from federal income taxes, and may be exempt from state and local taxes as well.

Clearly, you’ve got many opportunities to create a recovery plan that can help keep you on track toward your long-term financial goals. Start exploring these possibilities.

Ross Hage is a licensed financial adviser with Edward Jones. For more information, call him at (928) 468-2281.


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