Our $450K portfolio is now $250K. What should we do next?

Ask an Advisor: Our investment portfolio dropped from $450K to $250K. Should I cash in my investments?

Our investments were $450,000 and are now $250,000. How much should I lose before cashing in the investment?

-Liz

I am sorry that you have experienced such a significant financial loss. I know it can be stressful and scary as you wonder if things will change so you can reach your goals.

Since I don’t know your goals and the details of your situation, I can’t say what you should do to give yourself the best chance of reaching those goals. I can, however, share how I help my clients navigate these kinds of big ups and downs. (And if you need help managing your investment portfolio, consider Working with a financial advisor.)

Cashing out is usually not the answer

When I use the word “cash out”, this is what I’m talking about Selling out of your investments And keeping your money in cash instead. And it’s not something I almost ever recommend.

Investing is a volatile endeavor. Sometimes, the market is up. Sometimes, it’s below. Significant swings in either direction are an expected part of the process and are usually not a reason to change your investment plan.

The biggest problem with cashing out is that you will likely want to return to the market. There is no way to know the exact time to go back. And the market is up more often than down. Therefore, you are more likely to miss out on profits by staying out of the market than avoiding losses. This is especially true When you’re just going through a big market drop.

Instead of jumping in and out, investors should create a plan that anticipates large market swings and strikes a balance between risk and return that matches their personal goals. (And if you need help managing your investment portfolio, consider Working with a financial advisor.)

Here’s how I would think about it from your perspective.

Designing your investment plan

Before considering any changes, start by working through the four variables below Prepare your ideal investment plan:

Personal goals
Property distribution
diversity
fee

Personal goals

You need to be specific about what you are investing to accomplish. You can start by asking yourself a few questions:

What do I want to use this money for?
How much money will I need?
When will I need the money?
How much flexibility do I have and how much risk can I tolerate?

Answering these questions will help you move away from focusing on returns and focus on what’s really important, the life you’re trying to build with this money. (And if you need help managing your investment portfolio, consider Working with a financial advisor.)

Property distribution

your Property distribution That’s the balance you strike between high-risk, high-return investments like stocks and low-risk, low-return investments like bonds.

It’s usually a good idea to have a mix. Stocks are the engines that drive your long-term growth. Bonds provide some stability to smooth the ride when the stock market is down.

Your asset allocation is key to being able to weather fluctuations. When you get this mix right, you can be confident that you’ll gain enough from the stock market to reach your goals, without taking on more risk than you’re either willing or able to risk. .

diversity

diversity There is a financial version of not putting all your eggs in one basket.

Instead of trying to pick a handful of stocks or bonds that you think might perform well, you can spread your investments across many different stocks and bonds. Thus, no investment can overwhelm you.

In fact, since almost no one can consistently pick the right stocks and bonds, diversifying your portfolio can reduce your risk without reducing your expected return.

Index funds are an excellent diversification tool. With just a few funds, you can spread your portfolio across almost the entire global market to match almost any asset allocation you choose.

Diversification is a great way to ensure that you are not taking on any unnecessary investment risk. (And if you need help managing your investment portfolio, consider Working with a financial advisor.)

fee

Cost is an important consideration when choosing investments, especially mutual funds. Diligently reducing the fees you pay for your investments should increase your returns and reduce your risk. Whether the market is up or down, most of your money will be with you.

next step Follow the steps above, design your ideal investment plan, then see how your current portfolio compares.

If your current portfolio matches your ideal plan, you may not need to do anything right now. The loss you experienced may be a temporary and expected part of the process.

If your current portfolio doesn’t match your ideal plan, consider making some changes. It doesn’t mean cash in. That means making whatever adjustments you need to make to match the long-term portfolio you want.

Tips for finding a financial advisor

Finding a financial advisor No need to be strict. SmartAsset’s free tool You’ll be matched with up to three vetted financial advisors serving your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, Start now.
Consider a few consultants before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are Questions you should ask the counselor To make sure you make the right choice.
Keep an emergency fund in case you incur unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be reduced by inflation. But a high-interest account allows you to earn compound interest. Compare the savings accounts of these banks.
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Matt Baker, CFP®, is a SmartAsset financial planning columnist and answers readers’ questions on personal finance and tax topics. Got a question you want answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Matt is not a participant in the SmartAsset AMP platform, nor an employee of SmartAsset, and has been compensated for this article.

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