It’s been a tumultuous time in the stock market lately as major indexes move into the red for the year. Anxious investors everywhere are wondering whether they should stay invested or pull the trigger on their exit strategy.
Ahead of our year-end Q&A session, many of our viewers asked how to best navigate the huge swings in the market. Here’s what our experts had to say.
Are your investments properly allocated?
Assessing your current allocations within your portfolio is a must, says Jean Chatzky, financial expert and author of “AgeProof: Living Longer Without Running Out of Money or Breaking a Hip.” This is especially important for those who haven’t rebalanced their portfolios in over six months, and for those who aren’t already invested in a target-date retirement fund that automatically rebalances for you.
“You have to be long term in focus and stay to your objective, but you have to evaluate your objectives on a regular basis,” said Tom Stringfellow, president and CIO of Frost Investment Advisors, on Yahoo Finance’s “Market Movers” show.
For those who realize they’re taking on more risk than they want to be taking, you can reallocate some of your funds into safer havens, says Chatzky. For others who find their allocations are in line with their financials goals, she says you’re better off continuing to invest through your regularly scheduled investments over time. But if you’re a nervous wreck and losing sleep, Chatzky says: “I’m all for taking 5% out of stocks and seeing if you can sleep a little bit better. But we all know that trying to time both when to get out of the market and when to get into the market is a fool’s game.”
When do you need the funds?
The S&P 500 is now negative for the year and investors are hoping for a “Santa Claus” rally to close out the year.
Riding out this storm can be beneficial for those who don’t need the funds within five to 10 years, says Avani Ramnani, a financial advisor for those transitioning into retirement. Even if you’re planning on retiring in the next five years, you will likely live long enough to be able to keep your investments intact until the markets are back in the green.
Ramnani reminds her own clients that those who remained invested through the financial downturn in 2008-09 benefited greatly from the last 10 years with phenomenal returns.
Consider selling your losses before the end of the year
It’s a good time of year to look at your portfolio and think about selling some of your losses, says Alicia Jegede, a certified public accountant on our expert panel. This strategy is called tax-loss harvesting and minimizes an investor’s overall tax burden by offsetting the gains with the losses. To maximize this strategy, Jegede says to use both your long-term and short-term losses to offset your short-term gains because your short-term gains are taxed as ordinary income, rather than at the capital gains rate between 0 and 20%.
WATCH THE YEAR-END Q&A:
Jeanie Ahn is a senior reporter and producer at Yahoo Finance, covering personal finance and women in business. Follow her on Twitter.