A down market offers a chance to reassess your long-term investing goals and save on taxes. As an investor, it’s essential to stay calm during market fluctuations.
Market downturns are often short-lived, but prolonged ones can be unsettling. Instead of panicking, consider the following steps to navigate chaotic markets:
First, do no harm. Avoid dramatic portfolio changes, especially shifting out of stocks entirely. This may provide temporary relief but can lead to more worrying questions: Is it time to get back in? Instead, maintain a balanced asset allocation that aligns with your goals, life stage, and financial needs.
Next, check your liquid reserves. Having an emergency fund will protect you against unexpected expenses or income disruptions. Aim for 3-6 months’ worth of living expenses, but adjust based on individual circumstances.
Assess inflation protection. Inflation can erode the value of interest earnings, making it crucial to build a bulwark of inflation-protected assets in your portfolio. Consider adding Treasury Inflation-Protected Securities or TIPS mutual funds to your safe portion.
Finally, scout around for tax-saving opportunities. If you have taxable accounts, consider selling securities at a loss and applying those losses to offset capital gains elsewhere in your portfolio. You can also convert traditional IRAs to Roth IRAS, but be sure to get tax advice before proceeding.
By following these steps, you’ll be better equipped to navigate chaotic markets and achieve your long-term investing goals.
Source: https://www.morningstar.com/portfolios/what-now-an-investors-to-do-list-chaotic-markets