How Small Business Owners Can Navigate Market Downturns Like the Wealthy
The financial markets are known for throwing unexpected surprises at investors, as recent years have shown. Market downturns can be particularly challenging for small business owners who juggle multiple financial responsibilities. However, the wealthy have a set of strategies that help them not just survive downturns but thrive afterward. Here’s a closer look at these strategies and how you can apply them to protect and grow your wealth.
1. Stay Informed to Make Rational Decisions
One of the first things the wealthy do during market volatility is to remain informed. Market downturns often trigger emotional responses that can lead to rash decisions, like panic selling. Instead, wealthy investors rely on historical data and broader market trends to see the bigger picture. By understanding that market corrections and recoveries are cyclical, you can be better prepared to stay the course. Work with financial professionals who can provide accurate information and data to reinforce sound decision-making.
2. Review and Adjust Your Financial Strategy
Downturns present an opportunity to review your financial plan. It’s essential to evaluate whether your existing strategy still aligns with your long-term goals. The wealthy often adjust their plans to capitalize on emerging market trends or adopt new investment styles that better fit changing economic landscapes. Consider diversifying your portfolio, adopting a different investment strategy, or reallocating resources to different sectors.
3. Leverage Gifting for Tax Advantages
During a downturn, many affluent investors take advantage of gifting to trusts to reduce their taxable estate. By gifting stocks and other assets at depressed market values, you can minimize the gift tax and maximize the value received by your beneficiaries once the markets recover. This strategic approach can help secure a better financial future for your loved ones.
4. Consider Converting Traditional IRAs to Roth IRAs
Wealthy individuals often convert traditional IRAs to Roth IRAs during market downturns. Although converting comes with a tax bill, doing so during a downturn could result in paying taxes on a lower value, which can be beneficial if the account appreciates significantly over time. Roth IRAs also offer tax-free withdrawals in retirement and tax-free growth.
5. Identify Undervalued Assets
While equities are often top of mind, wealthy investors diversify by identifying undervalued assets across various classes. Real estate, private businesses, collectibles, and other alternative investments can provide excellent opportunities to “buy low.” Small business owners should consider expanding their horizons to new markets or acquisitions.
6. Revisit Financial Goals and Values
Major changes in the economic landscape may warrant a reevaluation of your financial goals and values. Whether it’s shifting your philanthropic focus or prioritizing different investments, your wealth should align with what matters most to you. Small business owners can take this opportunity to discuss their financial objectives with loved ones or trusted advisors to ensure their legacy is secure.
Conclusion
The strategies wealthy individuals use to navigate market downturns are not exclusive to them. By staying informed, reassessing your strategy, and leveraging gifting or IRA conversions, small business owners can confidently safeguard their wealth and capitalize on emerging opportunities. At DAMI, we specialize in helping small business owners create and maintain robust financial plans that support their unique goals.
Contact us today to start planning your strategy to weather any storm the market might bring.
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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.