As we witness unprecedented moves in the equity and fixed income markets, you may feel like you have less control over your finances. During challenging times there are a few proactive strategies you can explore to strengthen your financial position and rebuild assets.

Interest rates on mortgages and other consumer loans have dropped substantially this year, which makes this a great time to look at refinancing. For conventional mortgages, current rates are as low as 3.375% for 30-year loans and 3.0% for 15-year loans. If you currently have an adjustable-rate mortgage (ARM), you should inquire about refinancing and locking in the current rate until the next adjustment date.

This is also a good time to consider accelerating repayment of credit card or other consumer debt, if you have excess cash. Interest rates for savings accounts have declined back to historic lows. With annual percentage yields (APYs) ranging from 15% to 30% on most credit cards, the savings from eliminating this debt early can greatly exceed the amount you will earn from leaving money in a low-yield savings account. Be sure to maintain emergency savings that will cover 6 months of spending needs before you consider directing excess cash to retire high-interest rate debt.

A line of credit can be collateralized by various assets. The most common is a Home Equity Line of Credit (HELOC). Most banks and mortgage companies will allow you to establish a HELOC without requiring you to maintain a balance. You will only pay interest if you withdraw funds from the credit line. This is a great tool to have at your disposal if you face a need for cash and do not want to sell other investments.

Another option to explore is a Securities-Backed Line of Credit (SBLOC). This is a line of credit collateralized by your investment portfolio. There are no fees or closing costs to establish the SBLOC. Interest rates depend on the size of the credit line you are approved for. Again, interest is only paid on the amount withdrawn. Once your portfolio has recovered you can sell investments and pay off the line of credit.

While we do not know when the market will bottom, we do know equity prices are well below where they were at the start of the year. If you can increase your retirement plan, HSA or 529 Plan contributions to take advantage of current prices, you could be rewarded in the long term. If you are a business owner and have cash available to make a profit sharing contribution, you may consider making that contribution soon. However, make sure you maintain a cash cushion. It is difficult and often costly to take money back out of retirement plans, HSAs and 529 Plans for non-qualified purposes.

If part of your long term tax strategy is to convert assets from a Traditional IRA to a Roth IRA, now could be a great time to do the conversion. You will pay income tax on the amount converted. However, all subsequent growth will occur in the Roth IRA and be tax-free. Therefore, you could convert now and purchase the same investments in the Roth IRA as you held in the Traditional IRA. Once the market recovers, all of the appreciation that occurs in the Roth IRA avoids taxation.

If you anticipate an income tax refund, file your taxes as soon as possible. The refund can be used to supplement your existing cash flow, which could allow you to increase retirement plan contributions. If you anticipate owing income taxes, you now have a 90-day extension for filing your federal tax return and paying the balance due. The IRS has extended the filing deadline to July 15th. Please talk with your CPA if this is of interest, as many states have not yet provided guidance on whether or not they will align with the IRS. Even if state payments are required by April 15th, deferring the payment of federal taxes until July 15th is recommended.

Many individuals are facing a reduction in income as our economic activity slows dramatically for the next few months. This is exactly the purpose of your emergency savings account. Using cash savings to meet your spending needs will allow you to keep your portfolio invested so that it can participate in the future market recovery. If you do use your emergency savings, be sure to replenish these funds once your circumstances improve and you are able to start saving again.

If you do find yourself needing to take withdrawals from your portfolio, talk with your advisor about the possibility of adjusting your allocation so that you are not selling equities at current prices. For example, a client with a portfolio of 50% equity and 50% fixed income could sell bonds and use those proceeds for spending needs. The overall portfolio allocation will be more weighted to equities, which comes with increased volatility, but it also allows you to keep your equity investments and participate in the future market recovery.

All of the financial strategies outlined above may not be appropriate for your specific situation. Your advisor at Aldrich Wealth is here to answer your questions and help determine which strategies may be the most beneficial for you.