Volatility Playbook
What a week.
It gets hard to write a compelling blog when news changes that fast.
“Tariffs on!”
…“Tariffs off!”
…“No that was fake news and, actually, tariffs are still on!”
…“Wait, yes, they’re actually off for now.”
Utter chaos.
A couple days ago I was asked the manager of the office suites where Harding Wealth is headquartered, “Are you stressed about the markets? You seem pretty calm right now compared to some of the other financial advisors I know.”
I reminded her of two things:
1) I delivered a baby. At the time it was just me, my wife, and the 911 operator helping midwife my daughter into the world back in 2021. I stayed calm, let the experts be the experts and just followed directions to arrive at a safe and healthy outcome. Whatever brand of cognitive disorder it is that makes you calm in chaotic situations, I have it.
2) Things start to change when you understand that these kinds of markets are exactly why attractive long-term returns exist. After all, who would bother holding cash, T-bills, gold, or whatever else, if the equity markets steadily rose year after year without hiccups? No one.
But that’s not how it works. Instead, the cage gets rattled every so often. The door opens. A few of the animals scurry to what they think is safe, while the rest of us stay in for the rest of the ride.
Then I went to my office, grabbed a copy of The Psychology of Money and suggested she read Chapter 15: Nothing’s Free to help elaborate on the topic.
(If you haven’t read this book I suggest you do so. It’s packed with timeless investing wisdom. In fact, I have a bunch of copies and can even send you one. Just reach out.)
… As Warren Buffett so eloquently put it, “The most important quality for an investors is temperament, not intellect.” So we spend a lot of our energy trying to be both wise and even-keeled.
And a big part of maintaining good temperament is storytelling. So here’s a true story:
I recently spoke with someone who was convinced the entire system was on the brink of collapse — stocks, real estate, commodities, everything. She wanted to sell everything in her portfolio and move to cash. (Which, by the way, isn’t a great plan if you also believe the dollar is going to weaken. I wrote about that last week.)
We talked it through and made some small tweaks to her plan, but that’s not the interesting part.
This particular individual owns three houses. She lives in one, and the other two are investment properties.
After hearing her doomsday forecast, I asked, “So, are you planning to sell your real estate too?”
She looked at me (via Zoom) like I had three noses.
“Why would I do that?” she asked.
“You just told me everything is going to crash.” I replied. “How will your renters pay you? How will the properties hold up when your neighbors lose their jobs and their employers go under?”
She admitted it seemed silly to dump the real estate, given how much time, effort, and planning it takes to sell a property. We also talked about how there’s nothing particularly special about her houses — they’re similar to plenty of homes across the country.
So, I asked, “What if we could buy a fund made up of other single-family homes? And if you like homes, what about the commodities used to make those homes? And what about companies that curate those commodities? What about utilities, internet providers, appliance manufacturers?”
You can see where this is going. If she picks one single part of the economy she likes — real estate, in this case— then we can establish an entire narrative about how interconnected things are and why it’s unlikely that everything converges to zero.
But still, people often view their liquid portfolio as the "easy button" when it comes to making adjustments. I get it.
But as I said last week (and I think it bears repeating): If you have good investments, a real person will gladly buy them from you.
This person isn’t dumb or misguided. They might just be more optimistic, have a longer time horizon, or be investing money they don’t need right away.
In any case, my aim here is not to add another voice to the cacophony of market opinions flooding the airwaves right now (Believe me, I have some to share… Perhaps next week).
Instead, we offer a standard playbook for navigating volatile markets — no matter the catalyst.
When you free yourself from prediction, realize that volatility is a price investors pay for upside potential , and just focus on what you can control, things get a lot simpler.
Thus, here are some things you can control in these volatile markets:
1) Rebalance Your Portfolio
Your asset allocation is the biggest driver of your long-term returns. It should reflect your life and goals.
Asset allocation refers to the mix of stocks, bonds, real estate, cash, and alternatives in your portfolio.
In this drawdown, equities have likely taken a hit while fixed income has held up better. That probably means your stock allocation has shrunk while your bond allocation has grown.
Rebalancing back to your target allocation could set you up for a rebound — but proceed carefully.
2) Swap Tax-Inefficient Mutual Funds for ETFs in Taxable Accounts
Mutual funds have built-in tax issues that ETFs largely avoid. This matters in taxable brokerage accounts — not retirement accounts.
Mutual funds buy and sell securities, and when investors redeem shares, managers often sell holdings, triggering capital gains. These gains are then passed on to shareholders.
Here’s the problem:
If you’re in your high-income/high-tax-bracket years, these distributions can be painful — and you don’t get to opt out.
The mutual fund landscape is a few decades old, so many mutual funds are sitting on piles of unrealized capital gains (more time = better return potential). When someone exits the fund, they leave those gains behind — for you and the remaining shareholders.
ETFs are structured differently and offer more control over when you realize gains. More control = better planning = potentially better long-term outcomes.
3) Tax Loss Harvest Your Portfolio
I recently spoke with a guy who sold his business earlier this year for a couple million bucks. Next April he’s going to have some significant capital gains taxes to pay as a result of this sale. But he also put some of those proceeds into the stock market — in this case, he should consider tax loss harvesting in his taxable accounts.
If you're unfamiliar with tax-loss harvesting, check this out:
The basic idea:
Sell an investment that’s in a loss position to generate a realized capital loss.
Replace it with a similar, but not identical, investment (to avoid wash sale rules).
Use the capital losses now or carry them forward.
Ways capital losses help:
Offset up to $3,000 of ordinary income annually.
Offset capital gains from real estate, stocks, businesses, crypto, or those gold bars you impulse-bought from Costco.
Exit concentrated positions more tax-efficiently.
4) Roth Conversions
Some Roth conversion scenarios are no-brainers. My favorite:
You're retired, not yet collecting Social Security, and showing low income on your return. If that’s you and you’re not doing Roth conversions every year, let’s chat about it.
Another great use case:
You’re a high earner who left a job, took a sabbatical, and are waiting for your next move.
For most others, it’s a complex decision — but down markets make it more attractive.
Think of it like compressing a spring: You pay tax now (while it’s compressed), and let it grow tax-free in the Roth account later.
You can convert shares directly from a pretax account to a Roth. Target your highest-growth-potential assets.
5) 529 Contributions for Kids or Grandkids
A 529 is like a Roth, but for education. The money grows tax-free.
One cool feature: Superfunding.
You can contribute up to $190,000 as a couple ($95,000 individually) in a single year per beneficiary and treat it as if it were made over five years for gift tax purposes.
This doesn’t eat into your lifetime estate exemption. It’s a great estate planning tool.
Don’t have six-figure sums lying around? No problem. Many 529s grow large through consistency and opportunistic investing during downturns.
Another cool feature: your kids or grandkids can use the 529 to fund their own Roth IRAs down the road.
6) Accelerate Retirement Contributions
If you know you’ll max out your 401(k), IRA, or SEP IRA anyway, consider front-loading during a down market.
And reassess your contribution type — traditional (pretax) vs. Roth — based on your current and expected future tax situation.
7) Required Minimum Distributions (RMDs)
During market declines, be strategic about which assets you sell to meet RMDs.
Use funds that have held up — like bonds, money markets, or defensive stocks. Be cautious with automatic “pro-rata” distributions; they might sell down your best rebound candidates at the worst time.
8) Charitable Giving and Qualified Charitable Distributions (QCDs)
You can potentially amplify your charitable deductions by donating after a recovery.
But let’s be honest — giving isn’t always about strategy. If you feel called to give, then give.
If you have appreciated assets (like low-basis stock), give those instead of cash whenever possible. You’ll avoid the capital gains tax and still get the deduction.
That’s all for today.
Next week I’m sending out some tariff-specific research I think you’ll find interesting. Stay tuned.
Onward,
Adam Harding
Advisor
