Four Reasons to Consider Staying Invested in a Down Market
Watching your investment accounts lose ground can be scary, but continuing to contribute despite a down market could potentially be beneficial in the long run.
Your investment portfolio likely has seen better days than it did in 2022. The S&P 500 was down 19.4% at the end of the year, capping a year in which the stock market took a hit from recession fears, the Russia-Ukraine war, surging COVID-19 cases in China and interest rate hikes designed to curb inflation.
But while seeing red in your investment accounts during a down market can be alarming, it doesn’t mean you should be scared off from contributing to them or that you should give in to the urge to sell. Continuing to contribute to those accounts when the markets are struggling can potentially benefit you in the long run.
Here are some important factors to consider when deciding whether to stay invested during a down market:
1. Everything Is on Sale.
One reason to consider staying invested in a down market is because it can potentially present a strategic buying opportunity. It is important to know that if you’re still contributing to plans like 401(k)s and IRAs, you’re buying investments while a sale is going on.
You’ll want to stay involved to buy in at discount prices, allowing the future growth potential of those investments to be even higher than it once was.
2. You Can’t Time the Market.
Let’s say a person decides they want to pull out of the market because they feel it’s going to keep going down. The question then becomes, how will you know what the indicators will be when the market is about to rally? When do you get back in? So you’d have to be right twice — when to get out and when to get back in.
Here’s the key thing to know: The stock market’s best days tend to happen near its worst days. The rebound is usually quick and unannounced. In a down market, you may want to avoid trying to time the market and pull out your money, because that approach can potentially bite you. Because you can’t know when markets will recover, you may risk missing out on a comeback if you stop contributing to your investment accounts.
There’s a difference between trying to time the market and having time in the market. The latter may be a key to work toward long-term success, as the history of the stock market’s growth has shown. Investors should always remind themselves of the big picture, especially when we have market downturns. Replace the feeling of panic at the negative numbers with positivity and patience, based on the markets’ long track record of rebounding.
3. A Down Market Could Present Tax-Planning Opportunities.
If you have a 401(k) or IRA, that’s money that’s never been taxed. If those accounts are down, an option would be to take those dollars and convert them to a Roth IRA.
And when the market rebounds, you’ve got a lot more money in a Roth, which means it’s already taxed money. So the money you put in, as well as the money that’s grown, is tax-free.
4. The Markets Can Be a Great Place to Outpace Inflation.
Although 2022 was a rough year for inflation, history has shown that, over time, the markets outperform most other investments, especially inflationary investments. So if inflation keeps going up, generally speaking the market goes up with it to support the underlying investments.
It’s impossible to know when market volatility may end. For many investors, there’s a temptation to do something to mitigate losses.
But what you don’t want to do is act on emotion or try to anticipate the market’s direction. Staying the course takes patience and discipline and can be difficult during times of uncertainty, but as history has shown, it can potentially pay off.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. Investments involve risk, including the potential loss of principal invested. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. The information contained herein is believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. The appearances in Kiplinger were obtained through a PR program. The columnist received
assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. 1701791-3/23
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Phil Cooper is the founder, CEO and Financial Adviser of 210 Financial. He has spent over 25 years in multiple areas of the finance industry, including 19 as an Investment Adviser Representative, and 16 years running his own practice. Cooper passed both the Series 63 and 65 securities exams and holds a bachelor’s degree in biblical studies as well as an associate degree in electronic engineering.
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