Opinion: UBS expert explains that staying the course after a weak stock market year can have rewards

This artwork by Mark Weber refers to the volatile U.S. Stock Market.

This artwork by Mark Weber refers to the volatile U.S. Stock Market.

Mark Weber

As 2022 comes to a close, there is still time to complete a few financial planning tasks to ensure your finances are ready for 2023.

Financial planning is important in any economic environment, but especially during times of uncertainty. The year 2022 has been challenging, with stocks entering a bear market, persistent inflation, an aggressive Federal Reserve and geopolitical tensions all weighing on investors.

Times of market duress are an important reminder to make sure you have the necessary financial planning documents in place and that they are up-to-date. Because stock and real estate values have changed this year — and likely for the worse — have you reviewed your estate plan? Do you have a will? Do you have a trust? Who is your executor? Who is your trustee? Do you have a successor executor or successor trustee? Most importantly, have you funded your trust? Many people have trusts in place, but they are not funded. Funding a trust consists of actually transferring your assets into the trust — so the trust owns the asset. This ensures that you actually see the benefits of the trust. Your financial advisor and tax planning attorney can help you with this before the end of the year.

With the broader stock market down so far in 2022, if you were considering gifting assets to family members, now is actually an opportune time.

Let’s say you were planning to gift $10,000 worth of stock to your children and the stock was trading at $100 per share. That’s 100 shares. If the stock declined to $80 per share this year, that $10,000 worth of stock equates to a higher quantity of shares — 125 shares in this example. Having more shares allows for more growth of the stock holdings over the long-term. Times of depressed stock prices are often the best times to gift stock to family members. This is something your financial advisor and accountant can help with before the end of the year.

Finally, you may have heard of a concept known as tax loss harvesting. It’s often used toward the end of the year during both good and bad stock market environments. During this current market downturn, where many investors’ stock holdings have declined in value, tax loss harvesting can take on extra importance.

The tax loss harvesting strategy sells certain stocks at a loss to offset capital gains that were realized during the year.  This can reduce or eliminate the capital gains tax that was incurred at the time of sale.

The actual dollar amount of tax savings will depend on many factors, such as your overall income level. Still, this strategy can be useful in helping to recoup a portion of a stock investment that went south. Your financial advisor and tax accountant can help you with this before the end of the year.

As 2023 approaches, it’s also important to think about your financial goals for the next year and beyond. Chances are 2022 may have set you back financially due to the stock market’s declines. Those who stay the course and maintain a long-term outlook are often rewarded. Stock market declines are painful, but usually temporary.

Teresa Jacobsen is a private wealth advisor at UBS Private Wealth Management, based in Stamford.