What to do when the market falls

“My rule – and it’s good only about 99% of the time, so I have to be careful here – when these crises come along, the best rule you can possibly follow is not ‘Don’t stand there, do something,’ but ‘Don’t do something, stand there.”
John C. Bogle

Human instinct tells you to act when you feel in danger, even when action might not be the best course. And for investors, these feel like dangerous times.

Now is not the time to abandon your long-range plans and sell investments to avoid further losses. Nor is it the time to try your hand at timing the market. But if you feel compelled to do something while you wait for things to return to “normal”, look for ways not only to deal with market volatility, but to turn it to your advantage:

Contribute to your IRA or Roth IRA. What better time to add to your retirement savings than after prices have fallen? By the way, if you haven’t made IRA contributions this year, you just got lucky. It’s far better in the long run to make them as early as possible each year and put time on your side.
Consider a Roth IRA conversion. If it makes sense to convert some or all of your traditional IRA to a Roth, doing it after a market decline will allow you to convert a greater portion of it for each dollar you pay in taxes.
Put idle cash to work. It could be some time before interest rates on savings exceed the rate of inflation, so instead of losing purchasing power to inflation, get your excess cash working for you. Add it to your investment portfolio, or better yet, use it to pay down any credit card balances you have before interest rates get any higher.
Rebalance your investments. The recent volatility may have thrown your portfolio out of balance. If so, the markets are telling you what to do: consider selling overvalued and less desirable holdings and shift the proceeds into others that haven’t yet had their day in the sun.
Upgrade the quality of your holdings. When turbulent markets lead to across-the-board selling, they often create rare buying opportunities among high-quality businesses. Quality doesn’t go on sale often, so take advantage of it when it happens.
Harvest tax losses. Selling investments at a loss in taxable accounts allows you to offset some or all of your capital gains. But first, make sure you understand the wash sale rule, and get specific guidance from a qualified tax advisor.

Sitting tight can be sound advice during market downturns, when the danger of making big investment mistakes is greater. But taking advantage of these infrequent opportunities to improve your financial life might be even better.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of available data necessary for making an investment decision, and it does not constitute a recommendation.

Any opinions are those of Brown Family Wealth Advisors and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Expressions of opinion are as of this date and are subject to change without notice.

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