Should I Take My Money Out of the Stock Market? (2024)

When stock markets become volatile, investors can get nervous. In many cases, this prompts them to take money out of the market and keep it in cash. Cash money, after all, can be seen, physically held, and spent at will—and having money on hand makes many people feel more secure.

But how smart is it really to sell assets for cash when the market turns? Read on to find out whether your money is better off in the market or under your mattress.

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.
  • Cash doesn't grow in value; in fact, inflation erodes its purchasing power over time.
  • Cashing out after the market tanks means that you bought high and are selling low—the world's worst investment strategy.
  • Rather than cash out, consider rebalancing your holdings in downtimes.

Benefits of Holding Cash

There are definitely some benefits to holding cash. When the stock market is in free fall, holding cash helps you avoid further losses. Even if the stock market doesn't drop on a particular day, there is always the potential that it could have fallen—or will tomorrow. This possibility is known as systematic risk, and it can be completely avoided by holding cash.

Cash is also psychologically soothing. During troubled times, you can see and touch it. Unlike the rapidly dwindling balance in your brokerage account, cash will still be in your pocket or in your bank account in the morning.

However, while moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term.

When a Loss Is Not Really a Loss

When your funds are invested in stocks and the stock market goes down, you may feel like you've lost money. But you really haven't. At this point, you've only incurred a paper loss.

However, if you sell your holdings and move to cash, you lock in your losses. They go from being paper to being real. While paper losses don't feel good, long-term investors accept that the stock market rises and falls. Maintaining your positions when the market is down is the only way that your portfolio will have a chance to benefit when the market rebounds.

A turnaround in the market can put you right back to break-even and maybe even put a profit in your pocket. In contrast, if you sell out, there's no hope of recovery.

Inflation Is a Cash Killer

While having cash in your hand (or your portfolio) seems like a great way to stem your losses, cash is no defense against inflation. Inflation is the rate at which the level of prices for goods and services rises. It's less dramatic than a crash, but eventually, the impact can be just as devastating.

You may think your money is safe when it's in cash, but over time, its value erodes as inflation nibbles away at its purchasing power. Of course, inflation can impact the returns on equities over the long term as well. But you can adjust your holdings and your portfolio's weightings towards growth-oriented stocks. In contrast, you can't do much with cash.

The Opportunity Cost of Holding Cash

Opportunity cost is the price you pay in order to pursue a certain action. Put another way, opportunity cost refers to the benefits an individual, investor or business misses out on when choosing one alternative over another.

In the case of cash, taking your money out of the stock market requires that you compare the growth of your cash portfolio, which will be negative over the long term as inflationerodes your purchasing power, against the potential gains in the stock market. Historically, the stock market has been the better bet.

Opportunity cost is the reason why financial advisors recommend against borrowing or withdrawing funds from a 401(k), IRA, or another retirement-savings vehicle. Even if you eventually replace the money, you've lost the chance for it to grow while invested, and for your earnings to compound.

Be Careful About Buying High and Selling Low

Common sense may be the best argument against moving to cash, and selling your stocks after the market tanks means that you bought high and are selling low. That would be the exact opposite of a good investing strategy. While your instincts may be telling you to save what you have left, your instincts are in direct opposition with the most basic tenet of investing. The time to sell was back when your investments were in the darkest black—not when they are deep in the red.

When you sell your stocks and put your money in cash, odds are that you will eventually reinvest in the stock market. The question then becomes, "when should you make this move?" Trying to choose the right time to get in or out of the stock market is referred to as market timing. If you were unable to successfully predict the market's peak and time to sell, it is highly unlikely that you'll be any better at predicting its bottom and buying in just before it rises.

The Bottom Line

You were happy to buy when the price was high because you expected it to keep ascending endlessly. Now that it is low, you expect it to fall forever. Both expectations represent erroneous thinking. The stock market rarely moves in a straight line—in either direction.

However, historically it has gone up. Yes, living through downturns and bear markets can be nerve-wracking. Instead of selling out, a better strategy would be to rebalanceyour portfolio to correspond with market conditions and outlook, making sure to maintain your overall desired mix of assets. Investing in equities should be a long-term endeavor, and the long-term favors those who stay invested.

Should I Take My Money Out of the Stock Market? (2024)


Should I Take My Money Out of the Stock Market? ›

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.

Should I pull 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.

Should I pull my money out of the stock market before it crashes? ›

Losses aren't real until you sell. 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.

Should I pull my money out of the stock market in 2024? ›

Note to Investors: Stay Calm and Carry On

Stock market investors may be anxious, but as the old saying goes, "There's no need to panic." "While we maintain a positive view on the U.S. stock market in 2024, there are a range of risk factors that could derail the current bull market," Dilley says.

Should you pull your money out of the stock market during a recession? ›

It may make for some temporary uneasiness, but if you leave your portfolio alone, you'll set yourself up to get through this downturn unscathed. If you sell investments out of panic, you might lock in losses you never quite manage to fully recover from.

Is the stock market expected to go up in 2024? ›

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.

Can I lose my 401k if the market crashes? ›

The worst thing you can do to your 401(k) is to cash out if the market crashes. Market downturns are generally short and minimal compared to the rebounds that follow. As long as you hold on to your investments during a bear market, you haven't lost anything.

How not to lose money in the stock market? ›

Stop Loss Strategy

With this strategy, you can place a stop-loss order to buy or sell specific stocks when they reach a particular price level. For example, suppose that you buy stocks of company XYZ at Rs 50 per share. To control your losses, you enter a stop-loss order for Rs 48 per share.

What is the stock market prediction for 2025? ›

The Dow Jones is forecasted to trade in the 40,000-50,000 range during 2025 and continue the sideways movements in the next years. In five years from now, the agency forecasts Dow Jones to trade at around 50,000 points.

How hard is it to get your money out of the stock market? ›

Yes, you can pull money out of a brokerage account with a bank account transfer, a wire transfer, or by requesting a check. You can only withdraw cash, so if you want to withdraw more than your cash balance, you'll need to sell investments first.

What happens to the economy if the stock market crashes? ›

Usually, when the stock market crashes, this can halt economic growth throughout the region. This means that the government may choose to reduce spending, companies may not have access to funding for expansion or operations, and investors may run into many losses on their open positions.

Where is the safest place to put your money during a recession? ›

Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments. That's because they are backed by the U.S. government, which is deemed able to ensure that the principal and interest are repaid.

Can you lose money in a savings account during a recession? ›

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution. What happens if my bank fails during a recession?

What does Dave Ramsey say about the economy? ›

Ramsey's concern is that consumers struggling with still-high inflation and interest rates may be more compelled to put purchases on credit cards, which can be the path to financial ruin. As credit card balances exceeded $1 trillion in America for the first time in 2023, his concerns are valid.

Is it worth getting into the stock market right now? ›

Stock prices have surged significantly over the past 18 months. The S&P 500 is up by 45% since it bottomed out in October 2022, while the tech-heavy Nasdaq has soared by a whopping 58% in that time. Investing now, then, means paying much higher prices than you would if you'd bought a year or two ago.

Will 2024 be a bull or bear market? ›

With stock indexes at all-time highs, it seems we are in the midst of a new bull market. While much of the market's recent gains have come from a handful of stocks, the rally has begun to broaden in recent months. Expectations of an earnings rebound in 2024 suggest earnings could continue to drive the market higher.

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