Recent events have caused much fear and anxiety about the current state of the economy and markets. However, we live in a world of duality where every force also has a counter-force. While a recovery may take some time, here are five opportunities hidden in the midst of all of the doom and gloom.
1. Convert your Traditional IRA to a Roth IRA. The value of your Traditional IRA has undoubtedly dropped in the recent weeks, so now may be an opportune time to convert your Traditional IRA to a Roth IRA. When you convert your Traditional IRA balance you’ll owe income taxes on the converted funds. The temporary decline in value of your account balance means you will pay less tax upon conversion. Once the market recovers, all of the gains in the Roth IRA will be tax free…forever! To be eligible, modified adjusted gross income must be less than $100,000 for both single and joint filers.
2. Invest additional money while stocks are cheap. As scary as it may be, now is one of the best times to buy stocks, especially for those who are young. Fear and panic in the market has caused a significant drop in many stocks below their true long-term value. Increasing your 401K contributions now is a great way to dollar cost average into the market. If the market continues to slump you continue buying more shares at lower prices. When the market turns around, you’ll reap the benefits of buying low.
3. Banks are offering high yield CDs. Many banks are in desperate need of new capital due to the losses suffered over the past twelve months. One way for a bank to raise needed cash is through selling CDs and to attract money many are now offering attractive rates for short-term CDs. Recently, FDIC increased insurance to $250,000 per account per bank through December 31, 2009. Check out The Birmingham News Money Section for high yielders.
4. There are great bargains on new cars. If you are in the market for a new car, now is one of the best times in recent history. The overall auto industry is offering drastic price reductions, rebates and 0% financing. This is not limited to US automakers. Toyota has also recently announced a 0% financing offer.
5. Houses have become cheaper for first time home buyers. Houses are now a bargain, especially for first-time home buyers. The average price of the Birmingham metro home has dropped 17% from the peak of the market. A home that was out of reach just eighteen to twenty-four months ago is now a great long-term investment. First time home buyers can also take advantage of FHA programs that allow for a down payment as little as 3.50%. The Housing and Recovery Relief Act of 2008 provides first-time home buyers a $7,500 interest-free loan for purchasing a house between April 9, 2008 and July 1, 2009. The $7,500 is a refundable tax credit that can be claimed for first-time home buyers when they file their 2008 federal taxes. The loan is repaid $500 a year through subsequent federal tax filing until the loan is repaid or the home is sold.