Is it safer to pull your money out of the stock market now? (2024)

Is it safer to pull your money out of the stock market now?

It can be nerve-wracking to watch your portfolio consistently drop during bear market periods. After all, nobody likes losing money; that goes against the whole purpose of investing. However, pulling your money out of the stock market during down periods can often do more harm than good in the long term.

Key Takeaways

While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.

However, if you go out and sell stocks while they're down, you'll convert a potential loss to an actual loss -- and that's a move that could hurt you financially for many years to come. That's why now's really not the time to pull any money out of the stock market.

In other words, as long as you stay in the market for the long haul, there's never necessarily a bad time to invest. Even if stock prices plummet tomorrow, you're likely to see positive returns over time. The sooner you invest, the more time your money has to grow -- and the more you can potentially earn.

As business characteristics and market prices change, investing opportunities change with them. If you own a stock, but find another investment — perhaps another stock or something else entirely — that you find more attractive, it could make sense to sell what you own in favor of the better opportunity.

When to exit? "No one can time the market consistently over the long term. You should exit your investments only if you need the money or if your fund has been underperforming. If your fund is underperforming, you should assess whether the entire category has been struggling or it is just your fund.

Fear is currently driving the US market, according to CNN's Fear and Greed Index. Years of elevated interest and inflation rates, a chaotic political and geopolitical environment and general economic uncertainty may be sending both executives and shareholders into retreat.

The Bottom Line

Panic selling when the stock market is going down is more likely to hurt than help your portfolio. Moreover, you're locking in those losses. This is why it's important to understand your risk tolerance, your time horizon, and how the market works during downturns.

An investor's time horizon may play a significant role in determining whether or not they might want to get out of the stock market. Generally, the longer a period of time an investor has to ride out the market, the less they may want to fret about their portfolio during upheaval.

The S&P 500 generated an impressive 26.29% total return in 2023, rebounding from an 18.11% setback in 2022. Heading into 2024, investors are optimistic the same macroeconomic tailwinds that fueled the stock market's 2023 rally will propel the S&P 500 to new all-time highs in 2024.

Should I stay in the stock market right now?

When you may want to avoid the stock market. While it's generally safe to invest at any time (even during bear markets), there are a couple of situations where it could be risky. When you invest, it's best to keep your money in the market for at least several years -- if not decades.

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

If you do not use borrowed money, you will never owe money with your stock investments. Stocks can only drop to $0.00 per share, meaning you can lose 100% of your investment but not more than that, seeing as the stock cannot be of negative value.

After all, nobody likes losing money; that goes against the whole purpose of investing. However, pulling your money out of the stock market during down periods can often do more harm than good in the long term.

Of Americans who do have cash savings, 67%, are still earning less than a 4% annual percentage yield, Bankrate recently found. For goals one to two years away — or even three to five years away — it makes sense to allocate cash to make sure the money is there when you need it, according to Cox.

The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis. While cash investments -- such as a money market fund, savings account, or bank CD -- don't often yield much, having cash on hand can be invaluable in times of financial uncertainty.

Some investors believe that by selling during a downturn, they can wait out difficult market conditions and reinvest when the market looks better. However, timing the market is extremely difficult, and even professionals who attempt to do this fail more often than not. That's especially true with funds.

The decision to exit a large-cap stock should be based on reaching or nearing your financial goal. Even if your target timeframe is 1-3 years away, achieving around 90% of your goal could signal a good time to consider selling. This approach is based on the potential volatility of the equity market.

Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.

Only the top 5 per cent profit makers account for 75 per cent of profits. Saad Bhakshi, an aspiring pilot, is addicted to stock market investing.

Do I lose all my money if the stock market crashes?

Again, you technically don't lose any money in the stock market unless you sell your investments. If you simply hold your stocks until the market rebounds, your stocks should regain their value. The key is to ensure you're investing in strong stocks that have the ability to weather market turbulence.

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

But volatility shouldn't necessarily mean sitting out of the market. If you have some savings to invest, feel ready to buy stocks, and don't need the money for at least five years, then yes, jump in. Even when the market has lows, if you're invested for the long term, you'll have time to recover losses.

According to the Federal Deposit Insurance Corporation (FDIC), the independent government agency that protects funds deposited in banks, no one has ever lost a single cent invested in CDs it backs. Even if a financial institution is forced to close its doors, your money is safe up to the insured limit.