Market Corrections Offer Opportunities
Take advantage of a down market to make a Roth conversion when stocks and stock-focused funds are on sale.
The S&P 500 index has fallen into a correction as I write this in mid-March. So long as the large-cap index bottoms with a loss of between 10.0% and 19.9%, this will be the 25th correction since World War II.
Corrections have occurred, on average, about once every three years since the end of World War II. They are a normal part of the stock market’s cycle. Corrections typically bottom between three and four months after the previous market peak. Historically, the S&P 500 has then taken another three or four months to rebound.
It took less than one month for the S&P 500 to fall into a correction. In a tweet, CFRA Research chief investment strategist and AAII member Sam Stovall wrote: “History hints (but does not guarantee) that quick below 10% often lead to: 1) shallower [average] 2) shorter durations for the total & 3) quicker recoveries. However, the primary challenge remains the ongoing #tariff dispute, which adds uncertainty to both the & recovery.”
Down markets provide opportunities for tax savings. I will say this until I am blue in the face: Do your Roth conversions when the stock market is down. The Internal Revenue Service (IRS) only cares about the dollar amount converted, not the number of shares converted.
For those of you who are making contributions to an individual retirement account (IRA) or a Roth IRA, corrections provide a good opportunity to put money to work. Stocks and stock-focused funds—both mutual funds and exchange-traded funds (ETFs)—are on sale. Take advantage of the discounted prices.
Most importantly, realize that timing the market does not work. This is particularly the case now when the market’s headwinds are being fueled by political uncertainty. Investors who stick to disciplined strategies and are unfazed by market volatility achieve the highest long-term returns. If you feel an overwhelming urge to act, do so at the margins or with dollars you’ve previously and purposely set aside to speculate with.
A New Series on AI and Investing
This issue includes the first article in a new series about using artificial intelligence (AI) in the investing process. Though the technology is still in its early stages, the wide availability of AI chatbots (OpenAI’s ChatGPT, Google’s Gemini, Anthropic’s Claude, etc.) gives us individual investors access to potent computing power.
Professional investors have long been using technology to quickly analyze new information. When economic news and earnings reports are released, trading platforms immediately analyze the data and rapidly place trades based on it. This is done even faster than we can load a webpage to see the data. Portfolio managers and strategists also use technology to crunch numbers and find insights from large amounts of data.
I have been using AI chatbots for almost one year now. My initial motivation was to embrace the new technology rather than risk becoming obsolete by resisting it. Many of my fellow middle-aged friends are also using AI. We see it as the trend of the future and seek to make use of its benefits.
AI-powered investing explains where the technology is currently and what tools are available to individual investors. Explanations are given for some of the key terms for those who are completely new to AI. He also shares his thoughts on which chatbots work best for various investing-related tasks.
As helpful as AI can be, there are two big things to keep in mind:
Prompts matter. Prompts are instructions about what you want the AI chatbot to do or questions you want it to answer. The clearer and more specific you can be, the better.
Realize that AI can hallucinate. This is a polite way of saying that it makes up answers. Check its output with a secondary source before making a big decision.
Don’t let AI’s shortcomings deter you. It is unemotional—unlike us humans—and fast. My suggestion is to approach it with a combination of curiosity and willingness to double-check its answers.