It’s fair to say that February was a volatile month for the stock market, to the point where we dipped into correction territory after a strong run of gains. Inflation fears and tensions overseas contributed to market turbulence, and to be clear, those concerns still very much persist — to the point where we don’t know how stocks will fare in March.
If you unloaded some of your stock in February out of fear, you were probably in good company. But in the process, you may have locked in some permanent losses you’re now not happy about. If that’s the case, here’s how to move forward — and potentially use those losses to your advantage.
It could be a good time to reinvest
You may have liquidated some stocks for cash last month due to fears of a full-blown market crash. If that’s the case, you may be sitting on investing dollars you can put back to work — if that makes sense given your situation.
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To determine that, think about your investing horizon. Do you plan to tap your portfolio within the next few years — say, in conjunction with retirement? If so, then you may not want to load back up on stocks. But if retirement is still a decade away or longer, then you may want to start rebuilding your portfolio while stock values are still relatively affordable (or at least more affordable than they were before this recent bout of volatility).
If you’re interested in buying some stocks to compensate for the ones you sold, take a look at your portfolio and see if it’s as diverse as you’d like it to be. If your investment mix clearly doesn’t include a few key market sectors, then you may want to target those when adding stocks to your personal mix.
Meanwhile, if you’re worried about choosing individual stocks during these uncertain times, you can instead fall back on broad market exchange-traded funds (ETFs). If you buy shares of an S&P 500 ETFs, for example, you’ll effectively get to own a few hundred stocks with a single investment.
Use losses to your advantage
If you sold stocks at a loss last month, you may want to take the opportunity and cash in on some gains in your portfolio. Say you’re sitting on a stock whose value has soared, but you’re not sure its current value is sustainable. If fears of a large capital gains tax bill have been keeping you from cashing in on your gains, then it may be a good time to take that leap if you have a large enough loss from your personal sell-off.
Remember, too, that capital losses can also be used to offset some ordinary income. And they can be carried forward to future tax years. So don’t fret if you locked in losses during February, because you might manage to use them to your financial advantage.
February was a tough month for investors, and March could be just as rocky. If you’re years away from retirement, staying the course may be your best approach during ongoing volatility. But if you end up panic-selling and taking losses, know that you do have options for making the best of that situation.
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