The news continues to give alarming headlines warning about sharp market declines. It’s natural to feel uneasy about these swings, but what if volatility could actually benefit your portfolio and planning? The reality is, for those who take a long-term approach, volatility can create powerful opportunities.

At Carver Financial Services, we take a proactive and customized approach to managing wealth that can take advantage of short-term volatility.  We remain optimistic about the future of the markets and the broader economy. While short-term volatility may increase, we see this not as a threat but as an advantage for disciplined investors. Here’s why.

1. Buying Strong Investments at Lower Prices

Market swings can drive fear-based selling, pushing even high-quality investments to lower prices. This creates a chance for patient investors to buy strong assets at a discount. For instance, during the COVID-19 downturn in early 2020, the S&P 500 dropped over 30% in just a few weeks. However, by the end of that year, the market had rebounded by more than 70%, rewarding investors who stayed the course or added to their positions.

Similarly, during the 2008 financial crisis, the S&P 500 lost over 50% of its value at its lowest point. Those who remained invested saw the market recover and eventually surpass pre-crisis highs within a few years.

2. Portfolio Rebalancing for Long-Term Gains

Volatility can shift the balance of your investments. For example, if stock prices drop, your portfolio might become underweight in equities. Rebalancing during these periods—buying more stocks at lower prices—has been shown to enhance long-term returns.

Research from Vanguard has found that disciplined rebalancing during volatile periods can increase portfolio returns by up to 0.5% annually over time. By capitalizing on temporary price dips, you position yourself to benefit from future market recoveries.

3. Tax-Loss Harvesting for Greater Efficiency

Periods of volatility offer opportunities to reduce taxable income through a strategy called tax-loss harvesting. By selling investments that have temporarily declined, investors can realize losses to offset other gains. These savings, especially for high-income investors, can significantly boost after-tax returns.

A study by Vanguard reported that tax-loss harvesting can add up to 1% in annualized after-tax returns for high-net-worth investors. Over the years, this can translate into substantial wealth accumulation.

4. Reducing Risk from Over-Concentrated Positions

If you have a large portion of your portfolio tied up in a single investment, volatility may provide an opportunity to diversify. Selling during temporary price spikes can help reduce your risk without compromising your financial goals. This can protect your portfolio from the outsized impact of a single investment underperforming over time.

5. Tax Planning Opportunities

For those with complex financial needs, market fluctuations present various tax management strategies:

• Estate Planning and Gifting: Lower asset values during downturns allow for more tax-efficient wealth transfers to heirs.
• Roth IRA Conversions: Converting traditional IRA assets to a Roth IRA during a market dip reduces taxes on the conversion. Once markets recover, these gains accumulate tax-free.
• Capital Gains Management: Investors can manage gains during volatile times to benefit from lower tax rates or to strategically rebalance without incurring large tax consequences.

The Cost of Market Timing

Trying to time the market—moving in and out based on short-term movements—often leads to poor results. According to J.P. Morgan Asset Management, missing just the 10 best days of market performance over a 20-year period can reduce an investor’s total return by more than 50%. For example, if you had invested $10,000 in the S&P 500 from 2003 to 2023, you would have over $64,000 by staying fully invested. Missing only the 10 best days would have cut your total to just $29,708—a costly mistake.

Historical data also shows that many of the market’s best days occur soon after its worst days. By reacting emotionally and exiting the market during downturns, investors risk missing these critical recovery periods.

The Power of Long-Term Thinking

Short-term volatility can be unsettling, but history teaches us that the U.S. stock market tends to rise over time. Despite events such as the dot-com crash, the financial crisis, and the COVID-19 downturn, the S&P 500 has delivered an average annual return of about 10% over the past century.

It’s key to remember that you are not investing for the next few months but for the rest of your life.  The biggest risk is often inflation, not market volatility.  Investors who maintain a long-term perspective, remain invested, and follow a disciplined strategy are better positioned to achieve their financial goals.

Looking Ahead with Confidence

Despite near-term challenges like monetary policy shifts, geopolitical events, and fluctuating economic data, the long-term economic outlook remains strong. Innovation, corporate growth, and moderating inflation are all positive indicators for the future. We believe that volatility is not a risk to fear but a tool to leverage with the right strategy.

At Carver Financial Services, we emphasize staying invested and focused on your goals. With disciplined strategies like rebalancing, tax-efficient investing, and tailored portfolio management, we help clients turn market fluctuations into opportunities for success.

Key Takeaways

• Volatility creates opportunities to buy high-quality investments at lower prices, rebalance portfolios, and implement tax-efficient strategies.
• Tax-loss harvesting can increase annual after-tax returns by up to 1.0% (Vanguard).
• Missing just the 10 best days of market performance over a 20-year period can reduce returns by more than 50% (J.P. Morgan).

In today’s fast-paced world, it’s natural to feel concerned amidst the constant media hype. At Carver Financial Services, we are committed to guiding you through these market conditions, tailoring strategies to meet your unique goals and needs. Our personalized approach to planning is designed to empower you, providing clarity and confidence in every step of your financial journey.

Whether you have questions, concerns, or are ready to discuss your aspirations, I invite you to reach out to me directly or connect with our team. There is no cost or obligation to meet—just an opportunity to align your financial plan with your vision for the future.

As we look ahead, market volatility and media noise are inevitable. The true opportunity lies in how you respond. Together, we can turn uncertainty into a pathway for growth and success.

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Any opinions are those of Randy Carver and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.

Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. Prospective investors should consult with their tax or legal advisor prior to engaging in any tax-loss harvesting strategy.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax- free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.