The past six months have been the stock market\u2019s worst start to a year since 1970.<\/p>\n\n\n\n
And even though the richest billionaires lost a collective $1.4 trillion<\/a> in the past six months, in general high-net-worth individuals with at least $1 million in investable assets aren\u2019t sweating it, their financial planners say. And there are lessons for more modest investors in how to best approach a bear market<\/a>.<\/p>\n\n\n\n \u201cMost of our clients, they\u2019re just rolling with what is happening, and they\u2019re making adjustments that I don\u2019t view as significant,\u201d says Tim Speiss, tax partner at\u00a0EisnerAmper\u2019s Personal Wealth Advisors Group<\/a>. \u201cNo one is reacting as if we are in a crisis environment\u2026They\u2019re of the view\u2014as are we\u2014that this is all going to be transient.\u201d<\/p>\n\n\n\n Here are some takeaways for all investors.<\/p>\n\n\n\n There\u2019s no getting around it: The best time to prepare for a bear market is before it happens. Sophisticated investors do this by diversifying their assets\u2014real estate, fixed income, equities, and cash all play a role<\/a>\u2014and keeping their investing timeline in mind. If they won\u2019t need to draw down their assets for years or even decades, there\u2019s no need for panic.<\/p>\n\n\n\n \u201cThere\u2019s a lot of fear and negative sentiment out there, and those who are particularly savvy are thinking long-term, not really about the next six to 12 months,\u201d says Paul Deer, certified financial planner at Personal Capital<\/a>.<\/p>\n\n\n\n It\u2019s also likely they\u2019ve already rebalanced their asset allocation to have more cash on hand.<\/p>\n\n\n\n \u201cTypically when people are euphoric or overly optimistic about what\u2019s going on in the market\u2014that\u2019s when you want to take a little money off the table, and you want to create a slightly larger cash position,\u201d says Florina Shutin, managing director and investment adviser at Wells Fargo<\/a>. \u201cYou want the cash on the side when the dip happens. Because\u2026it\u2019s just harder to predict when it will happen and for how long.\u201d<\/p>\n\n\n\n That said, bear markets can often, well, lay bare what needs to change in your portfolio. Perhaps you\u2019re realizing that your asset allocation is more aggressive than you\u2019re actually comfortable with, or that you\u2019re missing exposure to an important segment.<\/p>\n\n\n\n On the flip side, you might find that coupled with decades-high inflation, now is a good time to explore putting more of your asset allocation into equities so that you can at least try to keep up with cost of living, says Deer.<\/p>\n\n\n\n He and Shutin also say it\u2019s a good time to look into alternative investments, which can include hedge funds, private These investments have typically been available only to investors with certain minimum investment requirements. But more and more financial companies are expanding options for the average investor as well, says Shutin. That doesn\u2019t mean you should take wild swings, or make big investments in unpredictable assets <\/strong>like Dogecoin<\/a>. But a little diversity can help.<\/p>\n\n\n\n \u201cHigh-net-worth investors like shiny things as much as anyone else,\u201d says David Waddell, CEO and chief investment strategist at Waddell and Associates. \u201cThey\u2019re prone to make mistakes too, but they limit their exposure to speculative wagers. They\u2019ll gamble, but they\u2019ll do it with much less enthusiasm.\u201d<\/p>\n\n\n\n One strategy high-net-worth individuals consider during a down market is a Roth IRA conversion. That involves transferring all or part of the balance of an existing traditional IRA into a Roth.<\/p>\n\n\n\n This is a good time because the tax implications of selling now, when account balances have taken a dip, are lower than they might be in the future. And your gains grow tax-free from here on out.<\/p>\n\n\n\n Converting to a Roth IRA is a nuanced strategy\u2014there\u2019s no single right answer that applies to everyone. If you have a financial adviser, it\u2019s a good conversation to have.<\/p>\n\n\n\n \u201cThe best way to think about it is: Are you in a lower tax bracket today than you would be in the future?\u201d says Deer. \u201cYour traditional IRA assets are at a lower value today than they were six months ago. You can ultimately translate that to the same growth but with lower tax consequence today.\u201d<\/p>\n\n\n\n This is an especially attractive strategy for those who plan to pass on some of their assets to children or grandchildren. While traditional IRAs require minimum distributions starting at age 72, Roth IRAs do not.<\/p>\n\n\n\n \u201cIf you have legacy planning as part of your financial plan, you might put more emphasis on the conversion,\u201d says Deer. \u201cThey could inherit a Roth IRA, and you could extend the duration of tax-free growth on those assets.\u201d<\/p>\n\n\n\nKeep following the plan<\/h2>\n\n\n\n
Reassess your positions<\/h2>\n\n\n\n
markets, real estate, and digital assets like cryptocurrencies. In fact, a recent EY survey<\/a> found 30% of high-net-worth individuals\u2014and 81% of ultra-high-net-worth individuals, with over $30 million in assets\u2014invest in alternatives.<\/p>\n\n\n\nConsider a Roth conversion<\/h2>\n\n\n\n
Optimize tax-loss harvesting<\/h2>\n\n\n\n