Do you remember that sinking feeling a few weeks into the new year when the stock market seemed like it would never stop sliding? You were ready to press the "sell" button, watching your investment gains melt away. Then you remembered the lesson learned in this long bull market: Don't panic.
Well, the stock market has come back significantly from those lows. It's giving you a second chance to get out. Should you take it?
We know that a patient accumulation strategy has worked over the long run when it comes to investing in the stock market. But if you've been following this strategy for many years, that means you're getting closer to the stage of life where you will need to start relying on your investments for income, instead of being able to take advantage of any decline in stock prices to buy more shares.
If you're approaching retirement, this may be your chance to rebalance your investment portfolio and to decide in a calmer moment how much exposure to the stock market is appropriate at this stage of your life.
That doesn't mean selling all stocks; you'll need the long-term growth that stocks provide during an extended retirement period. It does mean giving yourself some educated peace of mind about how you will deal with the need to cover your living expenses in retirement.
A note to those under age 55: You should stick to the plan of adding to your diversified stock market investments (such as an S&P 500 stock index fund) with every monthly retirement plan contribution. You have a long time horizon before you start needing to live on your investments, so don't use current conditions as an excuse to deviate from the plan.
Perspective is always essential when it comes to investing. We are just two months into the year, and the economic news hasn't changed dramatically. The global economy is still in slowdown, oil prices are still far below where they were a year ago, the Fed still hasn't acted again and U.S. economic reports haven't shifted in a major direction. Yet the stock market swings have been huge.
The Dow Jones Industrial Average is significantly below its 2015 highs of 18,351 -- but it is well above the low of 15,370 made last month, when the words "bear market" were making headlines. Remember how you felt then? Now we have come a long way back from that low point.
The stock market almost certainly will make new highs -- at some point. The only question is whether you can wait patiently for that point to arrive. Don't you remember thinking in the midst of the slide that "if only" you had it to do over again, you would be a bit less greedy, a bit more practical, and move at least some of those profits out of the market?
Now's your chance.
The alternatives aren't appealing. Moving money out of stocks guarantees it won't earn any interest in the bank. In fact, there is even talk of "negative interest rates." But that's not the point. Removing some money from exposure to the stock market means you won't live in anxiety about stock market losses. You will have cash on the sidelines to cushion your known spending needs in retirement.
How much money should you move to safety? That depends on your age and stage of life. It's important to create a clear strategy for continued growth of some of your investments, with liquidity for withdrawals to meet known needs over the next few years. You need a plan, not an emotional reaction.
But here's a starting point. There's an old market saying: "Sell down to the sleeping point." Now's your chance. And that's the Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.