Taking your money out of the market may seem like the safe option. After all, if stock prices continue to plummet, withdrawing your investments now could prevent you from losing even more. However, since the market has already fallen considerably, selling your shares now could result in those losses. Another analysis of your portfolio will help you determine which stocks are safest to sell and safest to invest in a bear market.
Don't sell a stock with long-term growth prospects just because it's lower in the bear market. Take this opportunity to continue investing in it. For older investors looking to convert stocks to cash, it's important to have a plan and not be too influenced by today's market. Even if you finally replace money, you've lost the opportunity for it to grow as you invested it and for your profits to increase.
Investors can take stock of the depreciated assets of their traditional IRA and transfer some of that money to a Roth IRA. When thinking about moving away from stocks, remember that even during retirement, and that can be a long time these days, stocks can still be an important part of your portfolio. Even as you opt for more liquid investments, remember that stocks play an important role in a diversified portfolio. Almost all major indices and many individual stocks are suffering double-digit losses so far this year, leaving many hesitant to invest more money in the already bleeding stock market.
But while that may leave you with a strong desire to sell your shares, you're absolutely right that it's best to have a plan and that plan should be determined based on your own circumstances, not by what the market is doing right now. Since all investment decisions must be made with the future in mind, it seems like an appropriate time to invest your money in the stock market. Putting your money to work on proven investments and giving it time to work for you is the best way to do that. Expected equity returns have only improved, as stock valuations fell amid the massive market sell-off earlier in the year.
The average cost in dollars softens the purchase price over time and puts your money to work when other investors stay on the sidelines or head out. If investors can get a relatively good rate (after inflation) for a bond, they will tend to take money from stocks to interest-bearing investments, such as government bonds. Many investors reach their stock market positions at an average cost in dollars, investing a fixed amount of money over time to smooth out ups and downs. If you're retired, don't withdraw funds from your stocks in a bear market unless you have no other option.
Common sense may be the best argument against switching to cash, and selling your shares after the market plunges means that you bought expensive and are selling low. But how smart is it really to sell assets for cash when the market changes? Read on to find out if your money is better on the market or under the mattress.