By Carl Szasz, President | Financial Advisor

When markets tumble and headlines scream uncertainty, anxiety can quickly set in. However, these moments of volatility are not just tests of nerve—they’re opportunities for savvy investors. At Verde Capital Management, we guide clients through these turbulent periods by encouraging three strategic actions:

1. Deploying Excess Cash During Market Downturns

If you have cash that you don’t anticipate needing for at least 12 to 36 months, a market decline presents a potential buying opportunity. Historical data from First Trust shows that after significant market drops—specifically declines of 5% or more in a single day—the market has, on average, risen by over 30% in the subsequent year.¹ Investing during these downturns positions you to benefit significantly as markets recover.

2. Traditional IRA to Roth IRA Conversions

Market drops create ideal moments to convert traditional IRAs to Roth IRAs. Consider a traditional IRA valued at $100,000 before a downturn, now valued at $90,000. By converting now, you’re taxed only on the reduced value. When markets rebound and the account recovers to its original value—or grows even more—this growth occurs tax-free in your Roth IRA.

3. Embrace a “Low Bad News” Diet

Behavioral finance tells us that most investors are naturally loss-averse—we feel the pain of losses far more intensely than we appreciate equivalent gains. During market declines, loss aversion can be particularly pronounced, leading to anxiety-driven decisions.

One common mistake is focusing on your portfolio’s decline in terms of absolute dollars rather than percentages. Imagine you have a $1 million portfolio that falls by 10%. Saying, “I lost $100,000!” can trigger panic, especially when mentally equated to your annual income. Yet, saying, “My portfolio dropped by 10%, and markets can recover quickly,” offers perspective and reduces unnecessary stress.

A Personal Story: Perspective Matters

When I started my advisory career at American Express—and later franchised out—my wife Melissa would ask how my day went. On days when markets were volatile, I’d casually say, “Bad day—I lost $2 million,” or conversely, “Good day—I made $3 million.” After a series of negative days, Melissa became visibly worried. “Are we going bankrupt? Is your business okay?” she asked anxiously.

I was taken aback until realizing I’d been unintentionally sensationalizing daily market swings. I explained to her, “Honey, $2 million represents just 1% of the total assets I manage. The market regularly moves by that much daily.” She replied, understandably frustrated, “Why didn’t you say that sooner? You’ve had me worried sick!”

This experience taught me a crucial lesson about framing. Losses expressed dramatically in dollar terms can induce panic. By focusing on percentages, we maintain perspective and emotional clarity.

How Verde Capital Management Supports You

While it’s vital for you to maintain perspective, it’s equally crucial for your advisors to proactively manage your portfolio:

• Preparing Before the Storm: At Verde, reacting to market volatility as it’s happening is akin to “trying to catch a falling knife.” A safer strategy is waiting until the knife hits the ground before picking it up. Anticipating downturns months in advance allows strategic rebalancing, currency hedging, and diversification into sectors less impacted by specific economic stressors—like tariffs.
• Watching Institutional Movements: One reliable sign the “knife” has hit the ground is institutional buying, particularly noticeable during the final 30 minutes of trading. Institutions typically execute their trades late in the trading day. If markets improve towards the close, it signals confidence from larger investors that valuations have stabilized. At Verde, we carefully monitor these patterns to optimize our timing.

Bottom Line

Market volatility will always be part of investing. By strategically deploying excess cash, considering Roth conversions at opportune moments, and managing your emotional response through perspective and a “low bad news” diet, you can significantly enhance your investment outcomes. At Verde, we’re committed to proactive portfolio management and thoughtful communication, helping you navigate market turbulence with confidence and clarity.

As always, reach out to your advisor if you have questions or concerns—we’re here to guide you every step of the way.

¹ Source: Bloomberg. Performance is price return only (no dividends). As of 9/30/2022. Past performance is no guarantee of future results. For illustrative purposes only and not indicative of any actual investment. Returns are average annualized returns, except those for periods of less than one year, which are cumulative. Index returns do not reflect any fees, expenses, or sales charges. Stocks are not guaranteed and have been more volatile than the other asset classes. These returns were the result of certain market factors and events which may not be repeated in the future. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. Investors cannot invest directly in an index.