I reacted accordingly when the market took a dive.
Monday, Aug. 5 was not a good day for the stock market. All major indexes took a dive, and investors were undoubtedly shaken.
I took steps to ensure that this week’s stock market sell-off didn’t hurt my retirement savings. And I hope you did the same — or will aim to do the same the next time something like this happens.
Image source: Getty Images.
My approach to a rapid market decline
A lot of the investments I own lost money this week. Want to know what I did with my retirement account in light of that? Not a thing.
It’s easy to panic and sell your investments following a major market event like the one that happened this week. But one thing to remember is that you don’t lose money in the stock market unless you actually sell investments when their value has dropped. If you do nothing and wait for a recovery, you can avoid losing money.
That’s the route I chose to take. See, my retirement portfolio wasn’t thrown together in an eeny-meeny-miny-moe sort of fashion. Rather, I put thought into each and every asset I own. I also took care to diversify my portfolio so that I’m not overly concentrated in any specific segment of the market.
Even though many of my investments lost value this week, I still feel that they’re good investments for me. And because of that, there’s no reason to sell any of them.
I’m nowhere close to tapping my retirement account. Even if I wanted to, I’d risk a 10% early-withdrawal penalty. So that was yet another reason why I opted to do nothing this week.
Try not to give in to fear
It’s definitely not easy to watch the value of your retirement savings suddenly decline. But just because your 401(k) or IRA is down from where it was a month ago doesn’t mean your retirement is doomed.
Of course, if you’re getting close to retirement age, Monday’s sell-off should serve as a warning to make sure your assets are allocated appropriately, given your stage of life. You shouldn’t, for example, have 95% of your portfolio in stocks if you think there’s a good chance you’ll be retiring in 2025.
You may also want to use this week’s events as a reminder to give your portfolio a checkup and make sure it’s properly balanced. Granted, the time to rebalance is not when the market is down. But it’s important to know how you’re invested and whether you’ve got too much money in any particular company or industry, no matter how strong it seems to be.
Generally speaking, your best bet following a stock market decline of any sort is to take a deep breath and leave your portfolio alone. This week’s sell-off wasn’t the first of its kind and likely won’t be the last. It’s how you react as an investor that can make a world of a difference.