Correction, Are we there yet?

[latexman]

A person pays taxes on the dollar value of the conversion. Lower stock prices mean more shares can be converted for the same tax cost.

The hope is that a stock goes from - for example - $40 a share to $20 a share, gets Roth converted, then goes back up to $40 a share. The net result is that the $20 rebound is tax free rather than tax-deferred. Rather than paying taxes on $40, a person pays taxes on $20.

Can one do a Roth conversion by transferring the fund?

 

[SecondCor521]

Can one do a Roth conversion by transferring the fund?

It might depend on the brokerage, but yes, I can at Vanguard.

Since my trad IRA is in mutual funds, the taxable income for the conversion is the NAV of the shares on the date of the transfer. So for example, if I did a conversion now, I would get today's closing price and the transaction would occur overnight tonight.

 

[Amethyst]

A Bear is certainly implicated, either way.

Well, I don't know if we'll get there but the market has been dropping like a rock at times, today! I am not going to actually DO anything, but I think I'll change over to my bear avatar just in case. That ought to scare away the bear.

 

[audreyh1]

How people feel affects the markets and economy. And, in that order, with the markets being easier and faster to change than the economy.

4225.5 -----------> 12% drop from nearest peak

Yes, we are firmly there, and now be on the lookout for . . . the bear!

So NASDAQ made it into bear territory according to one headline I saw.

 

[SecondCor521]

Well, I don't know if we'll get there but the market has been dropping like a rock at times, today! I am not going to actually DO anything, but I think I'll change over to my bear avatar just in case. That ought to scare away the bear.

Could you try typing the W-word backwards or something? Just a thought...

 

[audreyh1]

Eeeew!

 

[NW-Bound]

I think of corrections as not being influenced by geopolitical events like an invasion. I am not going to do anything at the moment, as I am not very good at catching a falling knife by using dry powder. Now if China learned anything from Putin, a much more serious event could be on the horizon. What would the impact be on Apple, pharma, rare earths, chip tech, etc that are highly China dependent if Taiwan was invaded? That is a scary thought.

Yes, this is now more than a correction. A correction usually happens after a bull market climb. When investors sit on a large gain, they tend to be edgy and ready to sell to cash out that gain. And selling is contagious, until the selling exhausts itself and the market resumes its climb.

We don't know how things will unfold with the current geopolitical events. I am sitting still. Not selling, but not buying either. Stock AA still above 70%.

 

[MichaelB]

Could you try typing the W-word backwards or something? Just a thought...

Eeeew!

 

[tmm99]

Eeeew!

 

[NW-Bound]

We cannot win!

Start to tighten your belt. No more Wagyu beef. Hamburger from ground chuck cut can be tasty if seasoned and grilled right. Also tastes great in spaghetti sauce.


PS. I take the above back. American Wagyu farmers need support too. Keep eating Wagyu beef.

 

[corn18]

I hit the panic button on my retirement model this morning. That button runs a macro that cuts spending back by 33% to a paltry $120k / year. Seems we're ok. Although it is disappointing to see all of my gains since retirement almost wiped out (that tiny line in the bottom left of the graph). The market giveth, the market taketh away.

 

[NW-Bound]

$120K/year budget?

Is Wagyu beef still in, or is it out?

 

[easysurfer]

I rebalanced start of year .... drops mic .


Okay, I confess, I may peek to see how market is doing, but doesn't mean I'll take any more action .

 

[street]

Things look ugly! I haven't paid much attention but see things are down and up and down again. A correction or more than a correction for me is to do nothing.

The market like the pro's here say doesn't reflect the economy. I do feel our economy want to explode in the upward way, but things just keep getting into the way. Be interesting journey to see how long and how bad she gets.

 

[pacergal]

+1

Doesn't matter to me. With patient "buy and hold" investment practices with long term results in mind, I don't have to change what I do depending on which way the wind is blowing. I like that.

Same here.

Eeeew!

 

[RunningBum]

I've read similar posts before, but not during a time when I was actually making Roth conversions, so I've never dug into the reasoning as to why it's better to convert when the market is down.

Could you (or anyone) explain, or point me to a primer, as to why down markets are a good time to convert to Roth?

Suppose you have 1000 shares of a fund or stock valued at $100/share in your tIRA. $100K total.

And suppose you have room to convert $50K worth this year. If you convert today, you convert 500 shares, and you now have 500 shares in your tIRA and 500 shares in your Roth. $50K in each account.

But what if instead the per share price drops to $90/share, a 10% drop. If you convert $50K while it's down, you can convert 50,000/90, or 555 shares. Now you have 445 shares in the tIRA and 555 in the Roth. If the price goes back up to $100/share, you have $44,500 in your tIRA and $55,500 in your Roth.

I'm assuming taxes are taken from an outside account, but the taxable income is $50,000 in either case so this is static. You can take the tax out of the conversion and the effect is basically the same.

So by doing conversion at a low point, you got more wound up with $5,500 "free" conversion, assuming the price recovered.

Conversely, if you convert at a high, you get fewer shares converted.

Of course you never know when prices will be at a low or high. Since on average prices will be higher at the end of the year than at the beginning, you might want to convert early in the year. But you could do a little bit of market timing by choosing when to convert.

I don't have stocks in my tIRA anyway so I don't see much fluctuation. I convert when I know I can safely early in the year, and top it off to hit whatever MAGI or taxable income target I have very late in the year when I know what the rest of my income for the year is.

 

[tmm99]

It does make you nervous about spending money when the market is like this. I was bracing myself for today's DJIA after finding out last night that the Russian market tanked something like 50% from the record high, but so far, things haven't been as bad as I anticipated...

 

[Trooper]

What's making this "correction" even worse is that bond funds aren't holding up their end of the bargain as a counter to equity fluctuations.
For example VBTLX is down 4.2% YTD.

 

[OldShooter]

It does make you nervous about spending money when the market is like this. I was bracing myself for today's DJIA after finding out last night that the Russian market tanked something like 50% from the record high, but so far, things haven't been as bad as I anticipated...

It doesn't make me nervous. In history, the markets have never failed to recover from a dip. WADR, I'd suggest that if watching makes you nervous, stop watching.

 

[tmm99]

It doesn't make me nervous. In history, the markets have never failed to recover from a dip. WADR, I'd suggest that if watching makes you nervous, stop watching.

True, the markets have always recovered from a dip, even the Nikkei Index recovered... in about 18 years!!

That won't happen here. I get nervous, but I still want to know. It's kind of exciting in a sickening way.

 

[MichaelB]

True, the markets have always recovered from a dip, even the Nikkei Index recovered... in about 18 years!!

That won't happen here. I get nervous, but I still want to know. It's kind of exciting in a sickening way.

It can happen here. The Nasdaq peaked in early ‘00, then took more than 10 years to reach that level once again.

 

[tmm99]

It can happen here. The Nasdaq peaked in early ‘00, then took more than 10 years to reach that level once again.

Yeah, that was pretty painful, especially with the tech sector!

 

[OldShooter]

Yeah, that was pretty painful, especially with the tech sector!

Which is why I don't make sector bets.

 

[tmm99]

Which is why I don't make sector bets.

I didn't/don't have sector-based funds in my portfolio except for about 4% REIT, but you can't really isolate tech stocks when you get index funds, etc, so you'll feel it if any sector goes down in a big way. All we can do is diversify...

 

[OldShooter]

... you'll feel it if any sector goes down in a big way.

and we feel it when sectors go up.

...All we can do is diversify...

Exactly.