Smart Moves Investors Make When the Stock Market Is Volatile
Are you feeling the heat of the volatile stock market? Cautious investors have been on a roller-coaster ride in the stock market during the past few months. The ups and downs of the ever-changing stock market can make you feel like you are on an emotional roller coaster. You may be wondering whether you should sell your investments and sit on the sidelines, hoping to buy back in at a lower price. Experts from these good investing websites recommend against trying to time the market. Instead, consider these smart moves when the stock market is volatile.
Increase Your Regular Contributions
When the stock market is volatile, increasing your regular contributions can be a really good move. While it may seem counterintuitive to invest more during uncertain times, consistently adding funds to your portfolio can help you take advantage of lower prices and potentially higher returns in the future. By increasing your contributions when stock prices are down, you’re essentially buying shares at a discounted rate.
This dollar-cost averaging strategy allows you to purchase more shares when prices are going down and fewer shares when prices are sky high, ultimately balancing out your overall investment cost over time.
Harvest Tax-Losses
When the stock market is volatile, savvy investors also seem to look for opportunities to minimize their tax liability through a strategy called “harvesting tax losses.” It basically refers to when investors sell investments that have experienced a huge loss in value to offset gains elsewhere in their portfolio. Strategically realizing these losses, you can minimize your taxable income and ultimately lower your tax bill. But keep in mind that there are IRS rules and regulations surrounding tax-loss harvesting.
Make a Switch to Much Lower Expense Investments
Aside from that, it’s also a good idea to reassess your investment strategy when the market is choppy. One smart move that investors can make during volatile times is to switch to much lower-expense investments. High fees can easily eat away at your returns over time, so choosing lower-cost options can help maximize your gains. Therefore, try exploring low-cost index funds or ETFs that basically track the all-around performance of a certain market index. These passive investments often come with significantly lower fees in comparison to actively managed funds, making them an attractive choice for cost-conscious investors.
Rebalance Your Portfolio
Last but not least, rebalancing can really help. If you can adjust your asset allocation back to its original target to maintain good diversification and manage risk effectively, you’re up for a good thing. Take a closer look at your investments and consider selling off overperforming assets while purchasing undervalued ones. This strategic move can help you stay on track with your long-term financial goals.
By rebalancing, you are essentially buying low and selling high – a fundamental principle of successful investing. Navigating the stock market during periods of volatility can be a daunting task, but smart investors know how to make strategic moves to protect and grow their investments. By increasing your regular contributions, harvesting tax losses, making a switch to lower-expense investments, and rebalancing your portfolio, you can position yourself for success even in uncertain times.
