The stock market has fallen from its record peak in 2021, and investors are on edge about what may happen in the near term.
In such a market environment, long-term investors have a few smart tricks up the sleeves that help them keep a steady footing and ensure that their investments stay profitable during such unstable times.
Here are some smart things you can do in your brokerage account while the market is down.
Let It Pass
Sometimes, the best thing you can do is just to let the market storm pass and avoid making frequent glances at your brokerage account.
For your security, it would help to keep yourself updated with the current state of the market and your investments. After all, occasionally checking your account allows you to determine whether you need to rebalance and can be a wise move if you’re near retirement.
However, many looks at their brokerage account more often than they should. Such a practice can affect them emotionally, especially when they see their account value dropping, leading them to make some poor investment decisions.
When markets are down, emotional influence is a significant obstacle that investors must overcome and learn to use to their advantage.
Seeing your portfolio value decline could prompt you to leave before the situation grows more dire. But if you look at it from a long-term perspective, choosing to take flight is never a good idea. That is why you should avoid checking your brokerage account regularly.
Rebalancing is a process where you aim to keep your portfolio’s asset allocation in line with your investment strategy by buying and selling specific holdings.
For example, if a stock in your portfolio has become overweight, you can put new money into other stocks until you balance the risk and reward in the portfolio again.
Another option is to sell your well-performing investments and redirect the returns into certain asset classes in your portfolio that may need a boost to bring the allocation back to your preferred level.
Investors sometimes choose to be hands-on with rebalancing, even if it’s automatic with target-date funds or robo-advisors. If you take the manual approach, it’s vital that you go over your investments after the market makes a sharp climb or decline.
Boost Retirement Contributions
A market downturn can be an excellent time to ramp up your retirement contributions. Because not only are you saving more for your future, but you’ll be doing so during a down market, which has proven to be an excellent time to make some new investments.
Financial professionals recommend that people set aside 10% of their income for retirement contributions, which doesn’t include employer matching contributions. While the average 401(k) contribution is around 7%, many usually contribute 3% to 5% to benefit from their employer’s match.
Nevertheless, you don’t have to start saving 10% of your salary for retirement contributions right away. Contributing only 1% of your income to a 401(k) or individual retirement account (IRA) can also be helpful over the long term.