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Investing can be stressful. Everyone wants to make the best choices possible for their financial futures, but reacting to sudden changes in the market can be difficult. Particularly, a lot of individual investors are unsure about what to do when market conditions worsen or experts predict an impending recession.
In times like those, you might question if it’s time to sell your stocks and stock funds and turn to cash instead. Depending on which area of your investment portfolio you are inquiring about, the answer to that question will vary.
Going cash can make sense for the portion of your portfolio that you use to cover immediate and ongoing costs, like your child’s future tuition bill. Ultimately, you can’t afford to have a balance of just $20,000 if you have to write a check for, say, $25,000.
Additionally, “cash” can refer to short-term bonds or bond funds, whose values typically have a stable value similar to that of cash, or actual cash, such as a bank account or money market fund account.
Going to cash is not the best option for the long-term portion of your portfolio, which includes your savings and accounts where you’re building up your retirement nest egg for a retirement that’s still five, ten, or twenty years away, or even further off in the future.
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Maintain Discipline in the Face of Volatility
It is obvious why it is beneficial to remain disciplined and adhere to your plan even when markets change. However, for a lot of us, there’s a disconnect between what we believe to be right and what we actually do.
Studies reveal that the anguish of losing money is greater than the joy experienced from winning it. Strong influences are exerted by emotions and cognitive biases, which can be challenging to overcome. However, there are things you can do to fortify your resolve while the markets fluctuate.
Should You Sell When Stock Prices Are Falling?
If selling stocks and stock funds would prevent you from losing even more money, then why is cashing in the long-term portion of your portfolio the wrong move?
Even jaded seasoned investors experience pain when their portfolios experience negative returns. However, losing money and losing value are two different things. Losses aren’t real until you sell.
Some investors think they can wait out challenging market conditions by selling during a downturn and reinvesting when the market appears to be improving. But timing the market is very hard, and most professionals who try to do this end up failing miserably. That’s especially true with funds.
Made $100K | How to Take Profits | When to Sell Stocks | When to take profits #series
FAQ
Should I take all my money out of the stock market?
Should I keep all my money in the stock market?
Is it time to exit the stock market?
Should I take my money out of the stock market?
In the case of cash, taking your money out of the stock market requires that you compare the growth of your cash portfolio, which will be negative over the long term as inflation erodes your purchasing power, against the potential gains in the stock market. Historically, the stock market has been the better bet.
Why do investors take money out of the stock market?
When stock markets become volatile, investors can get nervous. In many cases, this prompts them to take money out of the market and keep it in cash. Cash money, after all, can be seen, physically held, and spent at will—and having money on hand makes many people feel more secure.
Should you invest in the stock market or take it out?
Although the stock market produces volatile returns, it has a long history of outpacing inflation in the long run. So, if the money you have invested in the stock market isn’t going to be used in the next few years, it’s likely safer to keep your money invested than to take it out.
Should you keep money in the stock market?
Here’s an overview of factors investors might weigh when deciding whether to keep money in the stock market. An emotion-guided approach to the stock market, whether it’s the sudden offloading or purchasing of stocks, can stem from an attempt to predict the short-term movements in the market. This approach is called timing the market.