4 Ways to Squeeze the Most Out of the Bear Market, Email From CFP

  • We’re in a bear market, but it’s not all doom and gloom. Now is a good time to invest excess cash.
  • Series I savings bonds have a high interest rate and are a safe investment in the long run.
  • Harvesting losses from underperforming stocks and crypto can also save you some money.

Natalie Taylor is a Certified Financial Planner (and Insider contributor) who helps professionals in their 30s and 40s navigate the tradeoffs between saving for retirement, paying off debt, saving for college, buying homes, taking family vacations, and making decisions around investing, insurance, and career changes.

As the stock, bond, and crypto markets contintued their roller-coaster ride last week, Taylor sent out an email to her clients offering four ways to make the most of the bear market. An edited and condensed version of her letter is printed below.

Here’s what she wrote

Given the continued


and declines in the stock, bond, and crypto markets, I wanted to reach out with an update on what’s going on and provide a few timely opportunities for you to consider — silver linings of a difficult period in the market. If some of these timely opportunities apply to you, we’ve likely already communicated one-on-one about them or they’re on our agenda for our next meeting, but we’re sharing them here as well just in case.

What’s causing the decline in the markets this year? 

In short, inflation, interest rate increases, the war in Ukraine, higher oil prices, supply chain issues, and lower corporate earnings have all put downward pressure on stock prices. These factors, in addition to the collapse of a stablecoin called Terra and withdrawal freezes from crypto firm Celsius, have contributed to large declines in crypto as well. 

As for bonds, interest rate increases have led to bond prices dropping. That’s because when existing bonds carry a lower interest and new bonds are issued with higher interest rates, existing bonds become less attractive compared to new bonds. That leads to the price of existing bonds going down. (No one wants to buy an old 3% bond when they can get a new bond paying 5%.)

What opportunities are there when the market is down?

Invest excess cash

If you have cash sitting on the sidelines that is earmarked for a long-term goal (typically retirement or college for your kiddos), this could be a good time to invest those funds — either all at once or over the next several months. 

Consider series I savings bonds

Series I savings bonds purchased through October 2022 have an initial annualized interest rate of 9.62%! This rate applies for the first six months you own the bond, and resets every six months. There is an initial lockup period of 12 months after which you can redeem the bond at par value at any time. The interest rate could certainly go down (or up) over time, but will never be below zero.

If inflation is persistent, the rate will remain attractive as it is linked to the Consumer Price Index. You can purchase up to $10,000 of Series I bonds per person, per year, directly from the US Treasury.

Series I bonds could be a great option if you have cash set aside for a goal that’s between one and three years away, or for a portion of your emergency fund that you are absolutely confident you won’t need for the next 12 months. They could also be a great option for a portion of the bond component of a non-qualified portfolio. More info here and here.

Harvest losses in non-qualified accounts

You may have holdings in your non-qualified accounts (not IRAs, Roth IRAs, 401(k)s or 529s — just plain old brokerage investment accounts) that are now worth less than what you paid for them. Although investment losses are a bummer, there is a silver lining here. 

If you sell the holdings that have dropped (i.e. “harvest your losses”) and reinvest in different stocks, mutual funds, or ETFs, you can deduct up to $3,000 of realized losses on your taxes each year.

Losses not used on your 2022 taxes can be carried forward to future years. For example, if you’re in the 35% federal bracket and the 9.3% California state bracket, you could save about $1,300 on your taxes this year by realizing $3,000 of losses. Realized losses can also be used to offset

capital gains

, which can be helpful when trying to rebalance a portfolio that you’ve held for quite some time. 

What to know about the wash sale rule

If you’re looking to harvest losses to potentially lower your tax bill, be mindful of the wash sale rule. The wash sale rule states that if you sell a holding at a loss and then purchase the same holding (or a substantially identical holding) within 30 days before or after the sale, you can’t use the loss on your taxes. For example, if you sold Google stock at a loss today, and then bought Google stock tomorrow, you wouldn’t be able to claim the loss on your taxes.  

If we manage your non-qualified accounts and there have been opportunities to harvest tax losses, we’ve already taken care of it for you and will continue to do so. 

Harvest crypto losses

If you have money in crypto, you may have holdings that are now worth less than what you paid for them. If you sell your holdings that have dropped and then reinvest either in the same holding or different holdings, you can deduct up to $3,000 of losses on your taxes, or use those losses to offset gains elsewhere. 

If you’re looking to harvest crypto losses, you don’t have to worry about the wash sale rule because it currently doesn’t apply to crypto. That means you can repurchase the same holding right away and still use the loss on your taxes.

For example, if you sold bitcoin at a loss today, and repurchased bitcoin tomorrow, you could still claim the loss for tax purposes. However, the US government is contemplating a change to this rule and could potentially decide that the wash sale rule applies to all crypto transactions since the beginning of the year. Given that possibility, you may want to consider avoiding repurchasing the same crypto holding within 30 days of selling. 

Whether you’re considering harvesting losses in stocks, bonds, or crypto, keep in mind that staying invested long term gives you a better chance for growth in your portfolio. So if you sell holdings to realize losses, consider reinvesting those funds (being mindful of the wash sale rule) to give yourself a greater opportunity for future gains.

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