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March 5, 2020
With coronavirus scares making the global stock markets tumultuous on fears of reduced productivity, you might be worried about your own investments. Many people are asking what to do when stocks go down.
The answers are not always intuitive. Here are 10 money moves (some surprising) to make when stock markets go down.
For the vast majority of investors, especially those who have a long term investment strategy, doing NOTHING when stock markets go down is the BEST policy.
The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up.
Even a worst case year- or two-year contraction of the economy will likely eventually rebound.
So, most of the time, it is important to remain calm, don’t let emotions or stress take over and just do nothing. Ignore it.
When the entire market goes down, one strategy that can pay off big is to improve the mix of stocks you own.
Perhaps you own some “lower-quality” stocks of funds, you could potentially sell those holdings and buy into companies of higher quality and better long term prospects.
Look to sell companies with high fixed costs or lots of debt and buy stocks with high levels of growth, cash-rich balance sheets and good returns.
Of course, you need may some expertise to do this effectively.
Warren Buffet once said:
“What an investor needs is the ability to correctly evaluate selected businesses. You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
It is a good idea to know something about the companies whose stock you own and to really believe in them. You will be less likely to panic and sell in a major downturn if you actually understand what the company does and know enough about the industry to project whether or not there will be a market for whatever the company makes in the future.
Don’t have the expertise yourself? Talk with a certified financial advisor.
If you have been considering a Roth conversion, doing the transfer when the market is down means that you’ll pay income taxes on a lower portfolio value.
And, when the market bounces back, you will benefit from future tax-free growth and withdrawals from the Roth account.
A few things to keep in mind:1) A Roth conversion is a permanent move. It used to be you could undo the conversion, but the Secure Act changed that. 2) You’ll want to make sure that the conversion doesn’t raise your Medicare Part B and Part D premiums in future years. 3) Be sure you are careful to follow all conversion rules and reinvest while market is down. 4) Most importantly, make sure you have the money available to pay the taxes owed on the conversion. Ideally not from the account you are converting which reduces the efficiency of a conversion.
It is easy for you to Model different Roth conversion amounts in the NewRetirement Planner. PlannerPlus users can:
Learn more about Roth Conversions.
If possible, keep up with your regular savings contributions. And, if you have cash available, consider buying. The time to buy into the markets is when they are down.
You don’t have to time the exact bottom. When the market is sliding, many people buy a little bit every day and keep buying every time the market dips.
The advantage of this strategy is that you are more likely to get in before things rocket back up.
You see, the reality is that stocks typically soar back upward well before the crisis that provoked the selloff has run its course. The market recovery from the 2008-09 financial crisis illustrates this vividly:
If you experience losses in retirement investments, you are not necessarily in the poor house, especially if you consider alternate sources of wealth before selling stocks that are down.
Getting a reverse mortgage or downsizing to release your home equity or going back to work — even if just part time — are pretty easy ways to bridge your financial needs while the stock market recovers.
Try to avoid selling when your portfolio has experienced a loss.
Here are 11 of the best (and worst) sources of emergency money.
You probably know that you need a well diversified asset allocation plan.
However, most people are not as familiar with the idea of an Investment Policy Statement (IPS).
An IPS is meant to define:
A strong IPS can be an invaluable tool for helping you achieve your financial objectives and to stay the course when unpredictable things happen.
Want help with an IPS? Let us connect you to a prescreened retirement financial advisor.
Stock market dips and gains represent opportunities. But, making big money moves can be fraught with unintended consequences and the potential for making mistakes is serious.
It can be useful and reassuring to model different financial moves in the NewRetirement Planner or consult with a Certified Financial Advisor.
Did you know that NewRetirement offers flat fee advisory services? You can collaborate with a Certified Financial Planner who has taken a fiduciary oath and specializes in retirement. Your advisor will:
Click here if you would like to learn more about NewRetirement Advisors.
You’ll be much better off in a market crash if you have already created a highly detailed and completely personalized retirement plan that can easily be updated when things change.
Take this opportunity to review your most pessimistic projections and make sure you’ll be comfortable if the worst happens. The NewRetirement Planner allows you to adjust your rates of return, inflation assumptions and so much more and easily switch between optimistic and pessimistic values for your projections.
If you are still carrying a mortgage, you may want to assess your current interest rate and see if you can refinance into a lower rate.
Mortgage rates fell for much of 2019 and have hit all-time lows. And, experts predict that they will fall even lower with the latest Fed rate cuts designed to bolster the stock market.
However, mortgage lenders are having a hard time keeping up with refinancing demand. Here are a few tips to get your refinance over the finish line:
The best thing to do right now if the markets go down due to coronavirus scares? Wash your hands.
Coronavirus might impact your stock portfolio in the short term, but getting sick could have much more dire consequences.
However, if the market falls due to other factors — elections, trade, inflation, interest rates and so many other factors — consider the advice above, but still, wash your hands.
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