Investing is a risky business, and you may be wondering: Should I pull my money from stocks? In some cases, it may be better to hold on to your investments than to sell them, but timing the market is not always easy. If you do sell stocks before the market rebounds, you could lose money. It’s also risky to sell stocks at a loss, since you’ll miss out on potential earnings.
While stocks tend to rise in value over time, a downturn in the market can leave investors feeling uneasy. According to a recent study by MagnifyMoney, 38% of investors sold their stocks due to a current event, while 40% of them wished they had held onto their money. Panic-selling is more common among younger investors, as well as Gen Z and millennials. Men were more likely to sell their stocks in a panic than women.
However, a market downturn is a good time to buy stocks. This is because your stocks that you bought during a market upturn are now on sale, making it possible to buy more businesses. You can also take advantage of pre-tax accounts to lower your Uncle Sam’s tax bill by thousands of dollars. You can even invest in mutual funds or exchange-traded funds, which can help you avoid paying tax on the proceeds.
The time horizon of an investor can also determine whether he should withdraw his money from the market at a certain point in time. Short-term investors should opt for more stable investments, such as bonds, which have lower volatility than stocks. But people with longer-term horizons can ride out the volatility of the stock market and hold their investments for a longer period of time. So, when should I pull my money from stocks?
The answer depends on the current situation and your financial goals. Most experts recommend investing a minimum of 10% of your after-tax income, but different rules apply in periods of high inflation and low prices. Therefore, your situation may demand a different plan. If you are considering pulling your money from stocks, make sure that your allocation is more towards growth stocks than to cash. These investments are likely to be more profitable than cash over the long term.
If you’re withdrawing a substantial amount of money from your taxable brokerage account, make sure that you calculate your tax liabilities. Capital losses from taxable brokerage accounts can reduce ordinary taxable income by up to $3,000, and any amount over that can be carried forward to future tax years. Withdrawals are also an ideal opportunity to rebalance your portfolio. As a rule, large withdrawals tend to affect asset allocation and may make it necessary to borrow money to meet your financial goals.