What to Do When Stocks Go Down: 10 Surprising Moves

With coronavirus scares making the global stock markets tumultuous on fears of reduced productivity, you might be worried about your own investments. Many people are asking what to do when stocks go down. The answers are not always intuitive. Here are 10 money moves (some surprising) to make when stock markets go down.

1. Do Nothing (And, Reassure Yourself by Reviewing Long Term Charts)

For the vast majority of investors, especially those who have a long term investment strategy, doing NOTHING when stock markets go down is the BEST policy. The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up. Even a worst case year- or two-year contraction of the economy will likely eventually rebound. So, most of the time, it is important to remain calm, don’t let emotions or stress take over and just do nothing. Ignore it.

2. Upgrade Your Stock Portfolio

When the entire market goes down, one strategy that can pay off big is to improve the mix of stocks you own. Perhaps you own some “lower-quality” stocks of funds, you could potentially sell those holdings and buy into companies of higher quality and better long term prospects. Look to sell companies with high fixed costs or lots of debt and buy stocks with high levels of growth, cash-rich balance sheets and good returns. Of course, you need may some expertise to do this effectively. Warren Buffet once said:

“What an investor needs is the ability to correctly evaluate selected businesses. You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

It is a good idea to know something about the companies whose stock you own and to really believe in them. You will be less likely to panic and sell in a major downturn if you actually understand what the company does and know enough about the industry to project whether or not there will be a market for whatever the company makes in the future. Don’t have the expertise yourself? Talk with a certified financial advisor.

3. Do a Roth Conversion, Reduce Tax Burden

If you have been considering a Roth conversion, doing the transfer when the market is down means that you’ll pay income taxes on a lower portfolio value. And, when the market bounces back, you will benefit from future tax-free growth and withdrawals from the Roth account. A few things to keep in mind:1) A Roth conversion is a permanent move. It used to be you could undo the conversion, but the Secure Act changed that. 2) You’ll want to make sure that the conversion doesn’t raise your Medicare Part B and Part D premiums in future years. 3) Be sure you are careful to follow all conversion rules and reinvest while market is down. 4) Most importantly, make sure you have the money available to pay the taxes owed on the conversion. Ideally not from the account you are converting which reduces the efficiency of a conversion. It is easy for you to Model different Roth conversion amounts in the Boldin Retirement Planner. PlannerPlus users can:

• Model conversions at different amounts.
• Immediately see the difference in your lifetime tax burden.
• Analyze how it changes tax brackets and more.

Learn more about Roth Conversions.

4. Keep Up Regular Savings Contributions. And, Consider Buying with Available Cash

If possible, keep up with your regular savings contributions. And, if you have cash available, consider buying. The time to buy into the markets is when they are down. You don’t have to time the exact bottom. When the market is sliding, many people buy a little bit every day and keep buying every time the market dips. The advantage of this strategy is that you are more likely to get in before things rocket back up. You see, the reality is that stocks typically soar back upward well before the crisis that provoked the selloff has run its course. The market recovery from the 2008-09 financial crisis illustrates this vividly:

• Despite assurances from the pundits that investors should not expect a v-shaped recovery, stocks did exactly that.
• From the market low in March 2009, the Dow Jones index gained 30% in the span of just three months.
• By the end of the year it was up more than 60% from its low point. All of this occurred despite fear continuing to grip the market and the widespread belief that stocks were experiencing a false recovery and would fall below their March lows in short order.
• Investors who were still waiting for the “all clear” signal to get back into stocks instead saw stocks leave them in the dust.

5. Explore Creative Ways to Bridge Your Finances if You Experience a Loss

If you experience losses in retirement investments, you are not necessarily in the poor house, especially if you consider alternate sources of wealth before selling stocks that are down. Getting a reverse mortgage or downsizing to release your home equity or going back to work — even if just part time — are pretty easy ways to bridge your financial needs while the stock market recovers. Try to avoid selling when your portfolio has experienced a loss. Here are 11 of the best (and worst) sources of emergency money.

6. Review Your – or Take the Opportunity to Develop an – Investment Policy Statement

You probably know that you need a well diversified asset allocation plan. However, most people are not as familiar with the idea of an Investment Policy Statement (IPS). An IPS is meant to define:

• Investment goals
• Strategies for achieving those objectives
• A framework for making intelligent changes to your plan
• Options for what to do if things don’t go as expected

A strong IPS can be an invaluable tool for helping you achieve your financial objectives and to stay the course when unpredictable things happen. Want help with an IPS? Let us connect you to a prescreened retirement financial advisor.

7. Model Decisions and/or Consult an Expert

Stock market dips and gains represent opportunities. But, making big money moves can be fraught with unintended consequences and the potential for making mistakes is serious. It can be useful and reassuring to model different financial moves in the Boldin Retirement Planner or consult with a Certified Financial Advisor. Did you know that Boldin offers flat fee advisory services? You can collaborate with a Certified Financial Planner who has taken a fiduciary oath and specializes in retirement. Your advisor will:

• Review your Boldin plan to quickly understand your circumstances and make sure it is set up properly.
• Help you establish goals and identify ways to strengthen your finances.
• Meet with you via phone or video call to discuss your goals and suggest ideas for how to do better.
• Provide ongoing support.

Click here if you would like to learn more about Boldin Advisors.

8. Take a Look at Your Most Pessimistic Retirement Plan Projections

You’ll be much better off in a market crash if you have already created a highly detailed and completely personalized retirement plan that can easily be updated when things change. Take this opportunity to review your most pessimistic projections and make sure you’ll be comfortable if the worst happens. The Boldin Retirement Planner allows you to adjust your rates of return, inflation assumptions and so much more and easily switch between optimistic and pessimistic values for your projections.

9. Refinance Your Mortgage

If you are still carrying a mortgage, you may want to assess your current interest rate and see if you can refinance into a lower rate. Mortgage rates fell for much of 2019 and have hit all-time lows. And, experts predict that they will fall even lower with the latest Fed rate cuts designed to bolster the stock market. However, mortgage lenders are having a hard time keeping up with refinancing demand. Here are a few tips to get your refinance over the finish line:

• Respond as quickly as possible to any requests from your lender
• Shop around, but follow through with any refinancing traction you get from a lender
• If you have any income gaps, be ready to explain them
• Be ready for the appraisal with any information about your home or neighborhood that may be useful
• Don’t open up new credit applications if you are hoping to refinance
• Keep scrupulous records of all communications with your lender to prove that you have kept up with all requests in a timely manner

10. Wash Your Hands!

The best thing to do right now if the markets go down due to coronavirus scares? Wash your hands. Coronavirus might impact your stock portfolio in the short term, but getting sick could have much more dire consequences. However, if the market falls due to other factors — elections, trade, inflation, interest rates and so many other factors — consider the advice above, but still, wash your hands.