Most of us know that the stock market will go through down periods. You may even recall events such as the dot-com bubble or The Great Recession from 2007-2009. Most investors attempt to mentally prepare themselves for those inevitable bouts of market pain. But when they happen in real life, it’s still scary.
The chart to the right probably looks a lot like your retirement account in 2022. Seeing your account down thousands of dollars from where it was six months ago can create an intensely uneasy feeling. In your mind, you may start asking questions like, “Where did that money go?”, “Am I going to keep losing more?”, and “Should I do something before it’s too late?”
The first thought that often comes to mind for many investors when their accounts lose value is to sell the investments that have performed poorly. But that is unquestionably the worst thing to do in nearly every circumstance. Selling only locks in your losses. So, as unsatisfying as it sounds, the best advice is to ride out the current storm. Remember, successful investing is about time in the market not timing the market. Not even the most renowned investors are able to consistently buy in and sell out of the market at the exact right times. So don’t even try it. Far more money has been lost attempting to dodge downturns than by downturns themselves.
There are circumstances where selling some of your investments could be logical, even after they have fallen in value. But it’s exceedingly rare. Talk with a trusted advisor before making such a decision.
Fortunately, despite the sad state of affairs in the market, there are ways to take advantage of the situation. First and foremost, consider buying more. Rather than allowing the recent selloff to scare you, embrace it. When you go shopping and see a 20%-off-everything sign, you are probably more eager to find a good deal and look for things to buy. The same goes for the stock market. Being down 20% for the year means you can buy stocks at a discount. That’s a good thing. So, consider increasing your contribution rate into the 401(k) plan. Get as much money into the market before the current sale ends.
The other action you may want to consider is a Roth conversion. Since your account has dropped in value, it might be a good time to move some of your pre-tax money into a Roth account. You will have to pay taxes on any money you move over, but that money will never be taxed again. So when the market recovers, you won’t have to worry about owing Uncle Sam anything on your future gains.
Watching your account fall in value isn’t fun. No one enjoys it. But bailing out now probably isn’t the answer – and that holds true for those in or nearing retirement. The stock market has a 100% success rate when it comes to recovering from corrections and crashes. The odds are deeply in your favor.
Our investment advisory services and investment vehicles offered: Are Not FDIC Insured; Are Not Bank Guaranteed; May Lose Value. Invisor Financial LLC is a registered investment adviser offering advisory services in Kansas, as well as in certain other jurisdictions where exempted. Read our disclosures on our website: www.GoInvisor.com.
Justin Lueger is President of Invisor Financial LLC, a registered investor adviser firm in the State of Kansas. All opinions expressed are his own and should not be viewed as individual advice. He can be reached at justin.lueger@invisorgroup.com.