The 1 Move to Avoid at All Costs During a Down Market
Stocks are down substantially since the start of the year. And while some investors have seen their portfolios take a harder hit than others, it’s a precarious time to have money in the market.
If tracking your portfolio is making you more and more nervous by the day, you may be tempted to pull your money out of the stock market to minimize your losses. But that could end up being the biggest mistake you might make during a downturn.
Stay the course
When stock values keep plunging, it can be difficult to keep your cool and leave your money alone. But perhaps the worst thing you can do during a market downturn is pull your money out due to fear.
If you sell off stocks when they’re down, you’re guaranteed to lose money. It’s that simple. But if you leave your portfolio alone, there’s a good chance that in time, it will recover its lost value.
In fact, a really good bet right about now is to stop checking your portfolio on a regular basis. Checking your portfolio frequently is likely to wreak havoc on your mental health and potentially drive you toward rash decisions. If your stocks are earmarked for a far-off milestone like retirement, there’s probably no need to make changes to your positions anytime soon — so don’t even put yourself through the torture of looking.
What if a need for money arises?
You may have money in an IRA or 401(k) plan earmarked for retirement. But what if you have money in a regular brokerage account whose balance is now down, and a need for cash arises?
In that case, it pays to explore different options before tapping your portfolio and incurring major losses as a result. First, if you have an emergency fund, now’s the time to raid it. The great thing about savings accounts is that your balance doesn’t change based on market conditions, so if there’s money for you to access in the bank, that should be your go-to option.
Another avenue you might explore is to tap your home equity if you can do so affordably. Unfortunately, borrowing rates are now up across the board, so you’ll need to research your options to see if taking out a home equity loan or line of credit makes sense for accessing cash in a pinch. But these days, homeowners are sitting on record levels of tappable equity, so if you want to avoid major losses in your portfolio, that’s a good way to do it.
Don’t make a move you’ll regret
Stock values could recover in weeks, months, or years — it’s hard to know.
But one thing that is clear is that if you dump stocks while they’re down, you’ll guarantee yourself losses. And that could constitute a major financial setback for you. So if you have the option to leave your portfolio alone and ride out this current wave of rockiness, do your best to go that route.
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