Should you withdraw money from your brokerage account during a recession?
Many experts warn that the United States is in danger of recession. And the stock market recently trended lower on fears of an economic slowdown.
If you’re watching economic indicators and you’re worried, you might be thinking about withdrawing money from your brokerage account. But is it really a good idea and something you should be doing?
How to react to bad economic news?
Although it’s tempting to sell your investments for fear of an economic downturn, it’s generally a bad idea. In fact, it’s usually best to stay the course, maintain your investments, and even consider increasing the amount of money you invest in the stock market. It sounds counter-intuitive, but it actually makes sense for a few key reasons.
One of the problems is that it’s really hard to predict exactly what will happen with the economy or how stocks will react when things go wrong. Some companies can perform very well in a recession. Or you can assume the economy is struggling, but in fact things may well be going longer than expected or conditions may be improving.
If you sell your stocks and made the wrong guess, you could miss out on potential profits or even end up locking in losses that could have turned into gains if you had left your money alone.
Rather than opting to sell stocks when things seem to be going badly, it’s best not to disrupt your existing investments. Even if you experience short-term price declines, any loss is only on paper until you have actually sold assets for less than you paid. Most of the time, as long as you have made smart investments and hold on long enough, you will find that your investments recover and you will even end up making gains.
It may also be wise to invest more in times of economic difficulty. You can buy stocks of good companies at a discount during a recession or when things seem to be going badly.
How to make sure you don’t make the wrong investment choices in turbulent times
While it’s easy enough to say that you shouldn’t stop investing or withdraw money from your accounts during a recession, it’s hard to do so in practice because it can be scary to see the value of your wallet drop.
The good news is that there are ways to make sure you’re not sabotaging yourself by doing the wrong things. Specifically, you’ll want to commit to being a long-term investor. and you will want to be confident in your investments. You’ll also want to make sure you’re not investing your money in assets that you wouldn’t be happy to own for years, regardless of economic conditions.
If you follow these tips, you can hopefully ensure that you stay the course, as you will have planned and prepared for turbulent times and know without a doubt that your portfolio is built to withstand them.
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