Market down: 3 smart things to do in your brokerage account
The stock market has fallen from its all-time high in 2021, and investors are nervous about what might happen in the near term.
In such a market environment, long-term investors have a few tricks up their sleeves that help them maintain a stable footing and ensure that their investments remain profitable in these volatile 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 to do is just to let the market storm pass and avoid frequent glances at your brokerage account.
For your security, it would be useful to keep you informed of the current state of the market and your investments. After all, checking your account once in a while helps you determine if you need to rebalance and can be a wise move if you’re nearing retirement.
However, many check their brokerage account more often than they should. Such a practice can affect them emotionally, especially when they see their account value drop, leading them to make poor investment decisions.
When markets are down, emotional influence is a significant hurdle that investors must overcome and learn to use to their advantage.
Seeing the value of your portfolio drop could tempt you to leave before the situation gets worse. But if you look at it from a long-term perspective, choosing to take flight is never a good idea. This is why you should avoid regularly checking your brokerage account.
Rebalancing is a process by which 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 invest fresh money in other stocks until you balance the risk and reward in the portfolio again.
Another option is to sell your performing investments and redirect the returns to certain asset classes in your portfolio that might need a boost to bring the allocation back to your preferred level.
Investors sometimes choose to participate in rebalancing, even if it’s automatic with target date funds or robo-advisors. If you take the manual approach, it is essential that you review your investments after the market has risen or fallen sharply.
Increase pension contributions
A market downturn can be a great time to increase your retirement contributions. Because not only are you saving more for your future, you’ll be doing so during a bear market, which has proven to be a great time to make new investments.
Financial professionals recommend people set aside 10% of their income for retirement contributions, which does not include employer matching contributions. While the average 401(k) contribution is around 7%, many typically contribute 3% to 5% to receive matching from their employer.
However, you don’t have to start saving 10% of your salary for pension contributions right away. Contributing just 1% of your income to a 401(k) or Individual Retirement Account (IRA) can also help in the long run.