Hey Taylor – The markets have me freaking out a little. Should I be pulling money out to see if things are going to fall farther and then buy back in, or just stay the course? – Stephen
Hey Stephen – I understand the desire to hit the panic button, especially when you look at the markets in a two-week vacuum. It’s tough to see red and not want to do something about it. The decision to take money out of the markets isn’t one to be taken lightly, so make sure you think about all the factors at play.
–1. Short vs long term. Stocks, IRAs, and 401(k)s are long-term investment strategies. Unless you’ve reached the end of that term and need your retirement money for spending, you probably shouldn’t be thinking about turning your stock portfolio into cash right now. If you can remember back to 2020, the Dow dropped below 20,000 before climbing over 40,000 just a few years later. Things are scary right now, but you have to view this as one leg of a very long race. Markets are down, but that’s just the way it goes. On the other side of tariffs and turmoil may come renewed economic growth, and you might not want to be sitting on a bag of uninvested cash when that happens.
–2. Taxes and fees. If you’re considering taking money out of a retirement account because you’re worried about how much you’re losing, keep in mind that you could end up losing more by incurring a penalty for early withdrawal. Unless you have an opportunity to invest that money in a business or some property and then reimburse your retirement account, it’s worth asking whether there’s a real benefit to taking your money out and paying an extra fee. Even if the market keeps sliding, the losses from staying invested might not be as steep as the immediate cost of pulling funds out early.
–3. Have a plan. Everyone’s situation is different. While a 30-year-old probably shouldn’t even consider emptying their retirement account during difficult times, someone in their 70s has very different considerations. Above all, you need to know what you’re doing with your money. When I move money out of a brokerage account, it’s because I have another job for that cash to do. If the only thing motivating you to cash out is panic, that’s not really a strategy for building long-term wealth. At best, you might end up breaking even. At worst, you could pull your money out the day before the markets begin to recover and you miss out on a major upswing.
Timing the fluctuations of money markets is almost impossible. Diversify your investments, consider ways to hedge during times of trouble, and try not to make a rash move that could end up being costly. Thanks for the question!
Taylor Kovar, CFP®
CHIEF EXECUTIVE OFFICER
