When you invest, it’s important to have a vision of your long-term goals, develop a strategy to meet those goals, and stick to it. For many of us, that becomes especially challenging during times of economic downturn. It can be gut-wrenching to watch the value of your holdings take a dive, but panicking and selling could leave you in a much worse position than riding out the storm.
Should I take my money out of the stock market?
The answer to this is always “it depends.” Selling your stocks locks in the losses that have already occurred and prevents you from benefitting from future market gains. If you haven't sold any of your investments, then you haven’t really lost anything yet. If your portfolio is appropriately diversified and part of a sound long-term strategy, then sticking to your plan and riding out the downturn is probably the best idea. If you’re in a position to do so, you may actually want to purchase more stock during the downturn to take advantage of low prices. There are, however, some reasons you may want to sell some of your stocks.
Your Portfolio is unbalanced.
The ideal balance of stocks and bonds in your portfolio depends on many factors such as your comfort with variability, your age, the stage you’re at in your career, and your retirement goals. This balance is best determined in consultation with a trusted financial advisor. In general, however, younger people with more years before retirement tend to take on more risk by allocating more money to stocks, while those closer to retirement maintain shorter-term financial security by putting more money into safer investments. If you realize that you have more invested in stocks than is advisable, then rebalancing your portfolio back to the target allocation could help to keep you on track.
You need to free up capital.
Many Americans are experiencing loss of income as a result of the COVID-19 pandemic. You may decide that selling some of your investments is a good option for getting you through these tough economic times. If you sell, however, make sure to work with an expert who can help you minimize the taxes and fees associated with the sale as well as keep your target allocation in mind.
Why is a long-term investment strategy important?
Long-term investment strategies have a proven record of performance. . However, markets fluctuate greatly over the short term. While some investors have certainly used this fluctuation to their advantage, short-term buying and selling is more like gambling than an investment strategy. In fact, research released by Standard and Poor’s shows that just 8% of actively managed funds outperform their benchmark over a 15-year period. If a stock was a sound investment when you bought it, then it’s probably worth holding onto through stock market lows.
Will the stock market bounce back?
History tells us that the stock market has always bounced back. Since 1946, it’s taken an average of two years to recover from bear markets. It’s difficult, however, to predict when the market will fully recover from any particular downturn. Particularly if you’re nearing retirement, now may be a good time to meet with your financial advisor to assess whether you’re on track to meet your goals and make any necessary adjustments to your strategy. If retirement is still several years off, then sticking with a sound, long-term strategy remains the best way to protect yourself from the stock market’s ups and downs.
For more information about investment strategies and additional financial planning advice, subscribe to our blog!
Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.