Getting through tough times: What to do about the stock market


URBANA, Ill. — If you have money in the stock market, chances are you’re anxious about your investments. Should you act? And what exactly should you do?

University of Illinois consumer and family economics educator Karen Chan said there are things you should consider before you make a decision.

Are you thinking about stopping contributions to your retirement plan because your investments are doing so badly?

Ask yourself: Are your investments diversified, or is your money concentrated in your employer’s stock? Do you have an adequate emergency fund? Did you select these investments as part of an overall plan?

You’re retired, or planning to retire, and you planned to sell some investments each year to generate income.

Do you have savings to cover expenses for a year or two to give your investments a chance to recover? Could you return to work or continue working to delay tapping your investments? Can you cut expenses so you need less income?

Your child is starting college and these investments were intended to pay for college expenses.

Do you have savings to cover the first year or two so you can give your investments a chance to recover? Can your child attend a less expensive school for the first year or two or work to pay part of the costs?

The value of your investments has dropped a lot. You’re nervous and wondering if you should sell and put the money somewhere safe.

What would be the down side of selling now? How will you feel if you sell and miss the rebound of stock prices? How long will it be until you need to tap these investments? Did you select these investments as part of an overall plan?

A lot of your money is invested in your employer’s stock, through your 401(k), employee stock purchase plan or stock options and other special programs.

If the stock value drops and doesn’t recover, how would that affect your financial security, your retirement or other financial goals? What would happen if you lost your job and the stock lost much of its value at the same time?

Evaluate your options

To evaluate your options, Chan recommended using some important tools to gather information.

One is a net worth statement; another is your asset allocation (how much of your savings and investments are in cash, bonds, large cap stocks, small and mid cap stocks, foreign stocks and emerging markets).

Mutual funds may belong to any of these asset classes, she said. And the allocation of your money across these classes of investments determines the amount and type of risk you face, and how much you will earn from your investments.

“You can calculate your asset allocations using online tools such as Morningstar’s X-ray (, software such as Microsoft Money or Quicken or tools provided by your mutual fund or broker. Or you can do it with pen and paper. Add up your investments in each asset class and divide by the total amount of your investments,” Chan said.

“Compare your current asset allocations with allocations suggested for your situation or risk tolerance. You might start by comparing your results from these two online tools with your current asset allocation. Go to or


“You may decide your current asset allocation is too risky or too conservative for your situation. Bringing your allocation back to the desired percentages is called rebalancing. It can be accomplished by buying and selling investments, directing new money into underweighted asset classes or selling investments in an overweighted asset class to generate income,” she said.

Your asset allocation will show you whether you’re appropriately diversified across asset classes, but check to see you don’t have more than 5 to 10 percent of your money invested in any single company — including your employer and your investments are not overly concentrated in any single industry, she said.


Other things to consider:

Income taxes. You can buy and sell investments within a retirement account without tax consequences, but if you sell an investment at a profit that’s in a taxable account, you’ll need to report it on your taxes.

Missed opportunities. When stock prices begin to recover, they often increase in price very rapidly.

Transaction costs. Possible costs include commissions and broker’s fees, loads for purchasing certain mutual funds, surrender costs for taking money out of annuities before a certain number of years have passed, early withdrawal penalties for retirement accounts, and frequent-trading fees.

A single transaction versus a series of smaller ones. If you decide to buy or sell substantial amounts of any one investment, the costs may be lower if you do it all in one transaction. But spacing them out over a period of time removes the risk that you’ll buy or sell the entire amount at the exact worst time.

Take action — or not

Now it’s time to take action — or not. Do you want to rebalance your investments to match your asset allocation to an appropriate level of risk; dollar-cost-average out of a major holding to achieve better diversification; increase the amount of money held in “cash” so you have an adequate emergency fund; liquidate investments to generate cash you’ll need in the next year or so or do nothing?

You may decide the best course of action is to sit tight and wait for the market to recover.

If you feel overwhelmed or would like to work with a professional financial planner visit “Choosing a Financial Professional” at

Other recommended Web sites are “Beginner’s Guide to Asset Allocation, Diversification and Rebalancing” at and University of Illinois Extension’s “Plan Well, Retire Well” series at

Information on facing down your financial problems, including how to talk to creditors, which bill to pay first and how to deal with stress, can be found at

Get our Top Stories in Your Inbox

Next step: Check your inbox to confirm your subscription.



We are glad you have chosen to leave a comment. Please keep in mind that comments are moderated according to our comment policy.

Receive emails as this discussion progresses.