772-320-9658 [email protected]
Chapman Capital Advisors | Client Portal

Getting Comfortable with Market Discomfort

by | Sep 2, 2022 | The Ship's Wheel

A cartoon of a man with a hat and glasses.

My family and I just returned from an incredible experience in Greece and Turkey.  It was the first real international experience for my kids (Finn – 14 years old and Ella – 7 years old).  Greece felt comfortable.  Everyone spoke at least some English, the street signs and menus had English, and the food was familiar.  Turkey, on the other hand, felt foreign.  Many women wore burqas, there were five calls to prayer over loudspeakers every day (including pre-dawn), and we ate many unfamiliar foods.

We are all shaped by our experience and influenced by those around us.  My family and I grew the most while in Turkey.  We grew by putting ourselves in an uncomfortable position and creating experiences for ourselves we would never have in the U.S.  The discomfort caused me to think about how my views would differ had I been born in a different country or in a different era.  We cannot control where or when we are born, but we can be aware of how they influence our thoughts and feelings.  

Much like traveling to a place you have never been, you may also be uncomfortable with investing in stocks or the recent market correction.  To grow, whether it is as a person or an investment portfolio, you have to get a little uncomfortable.

The highlight of the trip for me was touring Cappadocia, in central Turkey where early Christians dug caves into the cliff walls for their homes, churches, and schools.  Their ingenuity, hard work, and art (see above) are incredible.  The signs were in Turkish, fewer people spoke English, and it was hard to know the different purposes for each cave.  We could not have had the experience without our guide, Alex.  He had the ability to make everything seem easy, fun, and interesting.

Some clients with investable cash have told Jay and me that they will invest when they are “more comfortable.”  The NASDAQ index is up over 20% from its recent lows.  Embracing the uncomfortable would have resulted in them having 20% more money.  

Buying businesses with established business models (i.e. profits over a number of years) might provide the little push out of your comfort zone you need. You do not have to speculate in crypto, NFTs (if you do not know what NFTs are, you certainly should not buy them), or any other emerging opportunity.  A diversified portfolio of well-established businesses will result in growth over time, both in you and in your portfolio, to help you achieve your goals.  If you or someone you care about feels uncomfortable about the stock market, we can guide you. 

Am I eligible to Convert my Traditional IRA to a Roth IRA?

Converting your Traditional IRA to a Roth IRA can be one of the best financial decisions made when saving for retirement if done correctly. Prior to 2010 there was an income limit that restricted the conversion to a Roth IRA if your (AGI) was over $100,000. As of 2013, the income limitation does not exist for a conversion, but it still exists for contributions. This does not mean it will not come back in the future, but for 2013 and beyond anyone can convert an existing Traditional IRA to a Roth IRA regardless of income.

For example, someone has a Traditional IRA with $350,000 invested, that IRA can be converted to a Roth and all the taxes need to be paid for the tax year the conversion was completed. After converting to a Roth, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be significant. Wouldn’t you rather pay taxes on $350,000 now than pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a qualified plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

This is just one example of completing a Roth conversion. You can do partial conversions as well. This means you do not have to convert the entire account. You could develop a strategy of doing partial Roth conversions over multiple years. The key is to consult with your tax advisor or accountant to make sure the conversion will not put you into another tax bracket. Every dollar you convert is taxed at your ordinary income tax rate. This strategy works best for younger investors who have longer to allow the money to grow and compound. It can also work well for an older investor who is in a low tax bracket. Another reason to convert to a Roth is that Roth IRAs are not subject to the Required Minimum Distribution after you reach age 73. For those of you out there that do not plan to use your IRA money to live this can be a huge advantage when it comes to passing along your IRA to your beneficiaries. Roth IRAs continue to grow tax-free after the conversion and after you die. There are distribution requirements for the beneficiaries, but the distributions are tax-free as well.
This strategy might not be right for everyone. I would advise you to consult with a Certified Financial Planner™ or your tax advisor prior to taking advantage of this potentially large tax savings. One of the best times to complete a Roth conversion is when the value of your Traditional IRA has fallen due to a market correction like we experienced in 2022. If you have questions on this article or would like to schedule a free financial review. Please contact Jay Chapman at 772-320-9658 or email [email protected].

Jay Chapman| CFP®

Jay Chapman| CFP®

Founder

Jay Chapman, CFP®, is founder of Chapman Capital Advisors, as a member of the advisory team. He has over 20 years of experience in the Financial Services industry.

Will Thompson | CFA®, CFP®, AIF®

Will Thompson | CFA®, CFP®, AIF®

Advisor

Will provides the in-house expertise of CFP®, CFA®, and AIF® that is uncommon for boutique firms.


Let's Start a Conversation

8 + 13 =