Should you take your money out of the stock market now? † Smart Change: Personal Finance

(Maurie Backman)

To say this is a tough time to be an investor would be an understatement. With major market indices falling significantly, many people are seeing losses in their portfolios. And if you’re one of them, you might be tempted to ditch your stock before more damage occurs. But taking your money out of the stock market right now is a move you might regret.

Why you should stick to your lesson

At this point, your portfolio may have fallen by 25% or 30% so far. If so, your logic might be that liquidating your stock now means avoiding a scenario where you’re looking at a 40% or 50% loss.

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It’s easy to understand that way of thinking. But one thing to remember is that any loss you see in your portfolio right now is hypothetical and not real. However, if you sell stocks while they’re low, you’re turning a potential loss into an actual loss — and that’s a move that could hurt you financially for many years to come.

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Therefore, now is really not the time to take money out of the stock market. The only exception is if you have a stock in your portfolio that underperformed before this recent downturn. If you’re not very confident in its ability to recover, you’d better take a loss on that individual stock and use it to your advantage. But broadly speaking, you shouldn’t be dumping stocks right now.

keep the faith

This is certainly not the first time the stock market has fallen, and it probably won’t be the last. But keep in mind that the stock market has a long history of recovering from recessions. If you keep your portfolio intact, you’ll find your balance in a year’s time back to the level it was before this recent decline. Or maybe you find yourself further than where you were at the start of 2022.

In addition, if the money in your portfolio is earmarked for a purpose like retirement, and you still have 15 to 25 years in the workforce ahead of you, there’s no reason to believe this current downturn will hurt your long-term plans. It may cause some temporary turmoil, but if you leave your portfolio alone, you’ll be geared up to make it through this downturn unscathed. If you panic sell investments, you can lock in losses from which you can never fully recover.

While this may seem counterintuitive, this is actually a pretty good time to add to your portfolio if you happen to have the cash laying around (or the opportunity to use some of your paycheck for investment purposes). The fact that the broad market is declining means you can buy quality stocks at a discount. And if you hold it for a long time, you can benefit quite a bit.

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