Should you pull your money out of the stock market right now?
Author: Maurie Backman
Source: The Motley Fool
To say that this is a difficult time to be an investor would be an understatement. With major market indexes being down significantly, a lot of people are seeing losses in their portfolios. And if you're one of them, you may be inclined to ditch your stocks before more damage ensues. But pulling your money out of the stock market right now is a move you might sorely regret.
Why you need to stay the course
At this point, your portfolio may be down 25% or 30% year to date. If that's the case, your logic might be that liquidating your stocks now means avoiding a scenario where you're looking at a 40% or 50% loss.
It's easy to understand that line of thinking. But one thing you must remember is that any loss you're seeing in your portfolio right now is a hypothetical one, not an actual one. However, if you go out and sell stocks while they're down, you'll convert a potential loss to an actual loss -- and that's a move that could hurt you financially for many years to come.
That's why now's really not the time to pull any money out of the stock market. The only exception is if you have a stock in your portfolio that was performing poorly before this recent downturn. If you don't have a lot of faith in its ability to recover, you may be better off taking a loss on that individual stock and using it to your advantage. But broadly speaking, you should not be dumping stocks right now.
Keep the faith
This certainly isn't the first time the stock market has tanked, and it likely won't be the last. But do keep in mind that the stock market has a long history of recovering from downturns. If you keep your portfolio intact, you may find that in a year from now, your balance will be back to where it was before this recent decline. Or you may find that you're up from where you were at the start of 2022.
Furthermore, if the money in your portfolio is earmarked for a goal like retirement, and you have another 15 to 25 years in the workforce ahead of you, then there's no reason to assume this current downturn will hurt your long-term plans. It may make for some temporary uneasiness, but if you leave your portfolio alone, you'll set yourself up to get through this downturn unscathed. If you sell investments out of panic, you might lock in losses you never quite manage to fully recover from.
While this may seem counterintuitive, now is actually a pretty good time to add to your portfolio if you happen to have the cash lying around (or the ability to use part of your paycheck for investing purposes). The fact that the broad market is down means you might scoop up quality stocks at a discount. And if you hold those for a long time, you could profit quite nicely.
This article was written by Maurie Backman from The Motley Fool and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to firstname.lastname@example.org.