5 things you can do during a market downturn
When stocks are rising, investors are usually pleased because their investments are increasing in value. But when there’s a dip in the market – whether it’s a short- or a longer-term decline – it can be worrying. A market downturn tends to leave investors uncertain about their investments and what their next move should be. We’ve got five things you can do when financial markets go down.
1. Don’t panic
Yes, the market is down, and your investments may have taken a worrying nosedive. But don’t give into fear. An emotional reaction could lead you to make rash decisions regarding your investments. If you sell your stock in a panic, your theoretical loss becomes a real loss. And if you’re no longer invested in that stock, you could miss out should that stock make a recovery down the road.
2. Stay invested
If you need to access your money, of course, you may need to sell your investment, but most experts suggest that you hold onto your stock to ride out the lows until the market recovers at least somewhat. Though it’s difficult to do nothing when your stocks plummet, it might be best to simply sit tight and wait it out. If you sell your investment when its value is low, you realize the loss. What looks like a loss of value in your portfolio isn’t an actual loss until you actually sell the stock. And then, you run the risk of missing out on the gains you could have made when the market rallies (or rises).
3. Revisit your investing strategy and risk tolerance
Ultimately, if your investment goals haven’t changed, neither should your investing strategy. That’s easy to say when markets are up, but when markets are down, it could be a good time to take another look at your overall investing strategy. If you’re finding it stressful to think about your investments, your risk tolerance may not be as high as you had originally estimated. A sharp or prolonged market downturn can tell you how you really feel about risk. And give you an opportunity to adjust for the future.
When you first created your investing plan, maybe you were younger, and had a longer time until retirement. Perhaps your investment risk is now too high because you have less time to recover from market dips. Have your financial goals changed? Do you need to shift your strategy to achieve your goals?
4. Tax-loss selling
There are some circumstances where it might be an advantage to sell your stock when its value declines significantly: on your tax return.
Tax-loss selling (or tax-loss harvesting) is when you sell an investment that has declined in value below its original purchase price. This triggers a “capital loss”, which can be used to offset capital gains you’ve made on another investment, saving you money at tax time. Talk to your accountant to see if this scenario might be right for you.
5. Consider adding to your investments
When markets dip, you might be able to find more opportunities to invest in undervalued companies. If you’ve been doing your due diligence and have identified a company to invest in, chances are that its stock is trading at a lower price than usual. It might be a good time to consider acting on your research.
Tools to help you navigate market volatility
Whether the market is going up or down, Qtrade Direct Investing has the tools and resources to help you invest with confidence. Explore our Portfolio Analytics, a comprehensive set of risk analysis and portfolio-building tools that can help you make informed investment decisions and manage your risk exposure as you navigate market swings.
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.