The stock market's March climb to new highs has been a great bull market ride – even for farmers and landowners with off-farm nest eggs. With it has come many conflicting predictions, notes Rick Rodgers, certified retirement counselor at Lancaster, Pa.
Some contend the "great bull" is coming to the end of its ride. Others argue it's just the beginning of a much larger rally. Either way, Rodgers suggests five smart financial moves to take advantage of market gains:
Rebalance asset allocations: It's simply bringing all your investments into a predefined mix of equities and fixed income assets. This is extremely important to your investment strategy, he emphasizes.
Your portfolio may be over-weighted in stocks because of the new market high. Rebalancing now would force you to harvest some of the gains.
Donate appreciated securities: If you're charitable-minded, this is a perfect opportunity to meet donation goals and double your tax savings using appreciated securities. If you've owned the security for at least a year, you can donate the asset and use the current market value as a deduction on your taxes.
You also avoid paying capital gains tax on the asset if you had sold it. This could be a significant tax savings on stocks purchased four years ago during the market low.
Net unrealized appreciation: Withdraw stock from your 401(k) and, instead of rolling it into an IRA, transfer it to a taxable brokerage account. Here's why one might want to do that: This strategy avoids paying ordinary income taxes (maximum rate 39.6%) on the stock's net unrealized appreciation and turns it into a capital gain (maximum rate of 20%). There are strict rules to follow, so consult a financial adviser experienced with this transaction before doing it.
Qualified charitable distribution: The American Taxpayer Relief Act of 2012 reinstated the ability to make a QCD through Dec. 31, 2013. A QCD allows individuals over age 70½ to directly transfer up to $100,000 from an IRA account to one or more charities. These transfers can be done using appreciated securities and are credited toward the IRA owner's required minimum distribution for the year.
Stop trying to time the market: You'll never know when the stock market is going to go down or when it will recover, contends Rodgers. The good news is you don't have to know.
Just stick with a solid financial plan using an asset-allocation strategy that divides your money between a diversified equity portfolio and fixed income. And, rebalance your portfolio periodically to take advantage of stock market volatility.
The famous investor Peter Lynch once said "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
Rodgers is president of Rodgers & Associates, and a member of the National Association of Personal Financial Advisers.