Main Street Business

#574 Stock Market Falls - 3 Strategies to Take Advantage and Build Wealth

• Mark J Kohler and Mat Sorensen

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In this video, I break down 3 strategies to help you navigate a market downturn:
1) The market always comes back – History shows us time and time again that corrections are normal and the market recovers. The key is staying invested.
2) Tax loss harvesting – This is a powerful tool to offset gains and reduce your tax bill. I’ll show you how to do it the right way.
3) Over-allocated in stocks? It might be time to diversify. If you're too heavy in the market, consider investing in alternative assets you actually understand.
Want to take control, invest in what you know?

Head over to DirectedIRA.com – where you can diversify your IRA and 401k into alternative assets like real estate, private companies, and more through a self-directed retirement account.

Need help with tax planning and legal strategies for your LLC or investments?
Go to KKOSlawyers.com to get expert planning that actually helps you build wealth.

Speaker 1:

Welcome everyone to the Main Street Business Podcast. This is Matt Sorensen, your host for today. Please enjoy. The stock market has been crashing in recent days and a lot of investors are asking the question what should I do? Should I be selling right now? What strategic decisions should I be making for my wealth and my future? The S&P 500 itself is down 10%. Your $100,000 account is now only worth $90,000 right now.

Speaker 1:

In today's video, I'm going to break down three important considerations you need to take into account when the stock market drops. Now, the first thing I want to say is the market always comes back. Just look at the S&P 500 itself. In the last 20 years, we've had 26 corrections in the market where it went down and came back. The most recent one in 2022, 27%. The stock market went down and came back. Now that was over 282 days. This was fear of inflation, rising rates, the Fed tightening all that stuff coming back, and so we have corrections Every year. I'm just looking at the chart here. The market goes down more than 5% and there's a correction period, but it always comes back. It's just a matter of when. So the first thing I want to think about is we want to stay invested. We want to stay the course. Don't go out and go into cash. Okay, I want you to stay invested. The worst thing you can do is miss the rebound. Okay, you want to buy low and sell high. Right now, if you're a seller in the market and you're going to cash, you're selling low. That's the opposite of what you should be doing here. But there's really two critical considerations you should do that are going to add more wealth into your pocket when the market goes down.

Speaker 1:

Now, one of the most strategic wealth building strategies you can do when the stock market goes down is something called tax loss harvesting. Strategies you can do when the stock market goes down is something called tax loss harvesting, and what you're doing here is you're selling your stocks or index funds at a loss and you're using that loss to offset other gains you might have in the stock market. So, for example, let's say you bought the S&P 500 fund and you bought $300,000 worth of it. So you had $300,000 purchase price of an S&P 500 index fund and right now, let's say it's down 10%, which it has been and now it's a value of $270,000. If I sell now, I'm going to have a loss of $30,000. I can use this loss to offset other taxable gains I might have in my stock portfolio. That helps me in the future. But I don't want you to sit out of the market, so I want you to repurchase other securities so you stay in the market.

Speaker 1:

Okay, typically a savvy investor isn't going to stay out of the market. They're just going to go buy some other stock or index fund. There's a critical rule you got to understand and it's called the wash sale rule and what that says is you can't sell and take a loss and then immediately go back and buy the same fund. So, for example, if you own the index fund, the S&P 500 SPY, and you sell that here for 270 grand, you can't go back and buy it tomorrow for $270,000 and claim the loss. But what you can do is, let's say again, you own the S&P 500 fund, you sell for a loss, you can buy a total market index fund P500 fund. You sell for a loss, you can buy a total market index fund, you can buy the NASDAQ, you can buy other index funds or stocks and you will be able to avoid the wash sell rule. So you can lock in the loss.

Speaker 1:

So at the end of the day, here. I've got a tax loss I can use to offset other income. I've replaced my security. I'm in a different index fund or set of stocks again that you believe in. You want to make good investment decisions on what you're replacing it here with. And now you're actually benefiting from the stock market going down because you've repositioned your assets. You're still in the market, still in a good fund that's going to track and have appreciation and growth over time. But you've got a tax loss along the way that you're going to be using against other gains that you're going to have on your tax return. Now, if this was in your IRA or 401k, don't worry about the tax loss harvesting. You don't pay taxes on the gains or there's no losses to take. So this is in your brokerage account, of course, where you would use this tax loss harvesting strategy. And for anyone new to this strategy, this is something you want to think about as the market goes down, because it can be an opportunity to lock in a loss.

Speaker 1:

Now the final point here, and probably the most critical when the stock market goes down, is I want you to look at your current investments. Too many Americans are over allocated in the stock market All of their IRA, their 401k, their personal money, is in the freaking stock market. Okay, that is not what wealthy people do. That is what lazy people do. Okay, it's easy to just go buy a stock or an ETF or a mutual fund. But you want to know what the wealthy do. They are not fully invested in the stock market.

Speaker 1:

There's a great statistic here that Ernst Young did on wealthy Americans and where their investments lie. Now, the mass affluent in America, those are people with about a million dollar net worth. 86% of that is invested in the stock market. Only 14% is in quote, unquote alternative assets like real estate, oil and gas, private funds, private equity, venture capital. Okay, 86% is invested in the stock market. But then you take people that have a 10 million or greater net worth. They only have 19% of their portfolio in the actual stock market. 81% of their net worth is in real estate, private funds, private companies, startups, private equity.

Speaker 1:

The wealthy just do not put all of their money in the stock market. They are investing in other assets that can drive better returns and higher value. So if you're someone annoyed by the stock market roller coaster, let's have a wake up call about where all your money is. Are you, too, allocated into the stock market? And no, you should start learning about these other private assets and alternative investments that the wealthy are investing in, and I want you to think about this, not just for your personal dollars, but for your IRA. Our company Directed IRA has two and a half billion in assets invested in non-publicly traded assets private companies, private funds, real estate, crypto. These are actually assets even your IRA could own. So you want to start opening up your eyes to the opportunities outside of the stock market. It takes a little more work, but it is what the wealthy do, and these alternative assets have proven an ability to drive greater returns than being totally reliant on the stock market.

Speaker 1:

Jp Morgan, the most Wall Street of all institutions out there, did a report themselves. Stock market. Jp Morgan, the most Wall Street of all institutions out there, did a report themselves and they said the typical portfolio that a financial advisor recommended, which was 60% stocks and 40% bonds, that is out the window. And they said you know what we like to do 30% to alternative assets, 40% to stocks and 30% to bonds or fixed income. And what they found was, when they allocated a little bit more money, 30% to alternative or fixed income and what they found was, when they allocated a little bit more money 30% to alternative assets, their clients had greater returns and less volatility.

Speaker 1:

So if you have not done that, if you are fully invested in the stock market alone, I want you to consider investing in alternatives with your personal funds, or even with your IRA or 401k using a self-directed IRA, which what we do at our company Directed IRA. Now, if you're like Matt I've never heard of an IRA owning non-publicly traded assets like real estate or private funds or private companies well, book a call with our team, get to our website at directediracom. We're here to help educate you and show you the options that are available to you. Well, I know it's stressful as you look at the stock market and see it going down.

Speaker 1:

This is our hard-earned money that we're investing and trying to grow for long-term wealth building. Just stay the course. Keep in mind these strategic alternatives, the tax loss harvesting option and also looking at diversifying your wealth into alternative assets. Thanks everyone for listening. I hope this episode was helpful. Now, if you want to get into the diagrams and some of the numbers I was writing down as I was going through this, get over to my YouTube channel, where these videos are as well. Thanks for listening. We'll see you next time and thank you everyone for listening.

Speaker 2:

A quick disclaimer and reminder this presentation does not constitute an attorney or CPA client relationship and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions.

Speaker 1:

We also want to make sure you know this is not investment advice or financial advice. We're just trying to give you education, ideas and strategies you can take to your professionals or conduct your own research on. We'll see you next time.

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Mark J. Kohler

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