6 Ways to Turn a Bad Market Into Your Advantage

Feeling a bit queasy about the market lately?

You’re not alone. Tariffs, interest rates and inflation worries have been giving investors heartburn lately. When the market takes a nosedive, it’s easy to feel like you should just hide under the covers until it’s all over.

But market downturns aren’t just doom and gloom. They can actually open doors to some smart money moves that wouldn’t make nearly as much sense during the good times.

No, I’m not talking about trying to time the market. There are practical financial planning strategies that can strengthen your financial position while everyone else is panicking.

Tax-Loss Harvesting

Ever thought about making your losses work for you? That’s what tax-loss harvesting is all about. You sell off investments that are down, and those losses can help shrink your tax bill.

Got gains from other investments? These losses can wipe them out. And if your losses outweigh your gains, you can even cut your regular income by up to $3,000 a year. It’s also a great chance to ditch any underperformers in your portfolio or spread things out if you’re too heavy in one stock.

Just be careful about the wash sale rules (basically, don’t buy back the same or a substantially identical investment within 30 days). A qualified investment advisor can help you navigate these complexities effectively.

Supercharge Your Retirement Savings

You know how you sometimes procrastinate on funding your IRA? In a down market, it might be worth jumping in sooner rather than later as part of your comprehensive retirement planning strategy.

If you typically wait until December to make your IRA contribution, consider moving that timeline up.

Why? Your money buys more shares when prices are low—it’s like getting your future retirement at a discount. The sooner your money gets in, the more time it has to potentially recover with the market.

And don’t forget about your Health Savings Account (HSA). If you’ve got more cash in there than you’ll need for medical expenses in the next year or two, consider investing the excess. Those potential gains could help cover your medical bills down the road. A financial planner or investment advisor can help you develop financial planning strategies that optimize these accounts for your specific situation. A certified financial planner (CFP) or investment advisor can help you develop financial planning strategies that optimize these accounts for your specific situation.

529 Plans: College Savings on Sale

Got kids or grandkids heading to college someday? A market downturn is a great time to beef up their 529 college savings plans as part of your long-term financial planning strategy.

You can even front-load these accounts with five years’ worth of gift tax exclusion amounts – we’re talking up to $95,000 per person or $190,000 per couple in 2025 – without touching your lifetime gift tax exclusion ($13.99 million in 2025). When the market eventually recovers, those education dollars could grow significantly.

Roth Conversions

If you’ve been thinking about converting some of your traditional IRA to a Roth IRA, a down market might be a great time. Why? Because you’ll pay income tax on the amount you convert, and that amount is lower when your account value has dropped.

When those investments recover inside your Roth IRA, all that growth and future withdrawals could be completely tax-free. This is where solid financial planning advice from a fiduciary financial advisor can be invaluable in figuring out the right timing and amount for your situation.

Make the Most of Incentive Stock Options

If you’ve got incentive stock options (ISOs) at work, you’re probably familiar with the Alternative Minimum Tax (AMT) headache. When markets are down, the spread between your stock’s fair market value and your option’s exercise price shrinks, which means you can exercise more options while staying under the AMT exemption ($88,100 for singles or $137,000 for married filing jointly in 2025).

This is definitely one of those areas where you’ll want to check with your certified financial planner (CFP) or financial advisor before making any moves – but it could be a significant opportunity if you play it right.

Consider Estate Planning Moves

If you have a bigger nest egg and estate tax worries, a market downturn offers some interesting planning opportunities.

One sophisticated approach is using a grantor retained annuity trust (GRAT). Here’s the simplified version: you transfer assets you believe will bounce back strongly into this special trust. During the trust’s term (at least two years), you receive annuity payments that return the assets’ original value plus a minimum interest rate set by the IRS. After the term ends, any growth above that hurdle rate passes to your beneficiaries completely tax-free.

This is advanced strategy so you’ll want to speak with a registered investment advisor who can coordinate with estate planning attorneys to ensure your investment strategy aligns with your estate planning goals.

Keeping Your Cool When Markets Panic

Sometimes the best move is no move at all. If you’ve got a solid financial plan and don’t need the money anytime soon, sitting tight might be your best strategy. Panic-selling is how temporary paper losses become permanent ones.

But if you’re looking for ways to make the most of a challenging situation, these strategies are worth considering. Sometimes, a bad market might just be setting you up for something better later on.

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