Making Money Moves? Things to Consider Before Shaking Up Your Marcus Invest Portfolio

What we’ll cover:

• Marcus Invest portfolios are built with a long-term view in mind and are intended to handle market volatility
• Markets are unpredictable, and trying to time the market can result in realizing losses or missing growth opportunities
• Making certain portfolio changes could have tax consequences

Any day that the financial markets are open, it’s normal to see your investment value going up and down as prices of stocks and bonds change throughout the day. But when those fluctuations cause big (or even small) swings in your portfolio’s value, it can be easy to let emotions take over, making you feel like you have to take some drastic action in your investment or retirement account.

For instance, some investors may feel the need to pull their money out of the market by emptying their accounts and moving to cash. Others might fiddle with their risk level and investment timeline in order to get a new asset allocation. Or they might even decide to abandon their original investment strategy altogether, switching things up just for the sake of making a change. 

Of course, there will be times when making portfolio changes or withdrawals may make sense, like if you have a life event that alters your investment goals, tolerance for risk or time horizon. We understand that life happens and as your goals change, your investments should reflect those changes.

But what we’re talking about is when investors make portfolio changes simply because the market is going through a downturn or because they think they have a crystal ball to predict the path of the market. As we mentioned earlier, these changes may include things like taking out chunks of money at a time or jumping from one strategy to another.

At Marcus Invest, we believe it’s important to resist those knee-jerk reactions. Sometimes, it’s best to sit back and wait out the ups and downs. 

Easy? Probably not. But it’s important to avoid letting our emotions drive our investment decisions. During times of volatility, if your personal circumstances have not changed, here are three reasons why staying the course could be the best approach:

• Our portfolios are built with a long-term view in mind and are intended to handle market volatility.
• It’s tough to predict the movements of the market in the short term, and trying to time the market can result in realizing losses or missing growth opportunities.
• Making certain portfolio changes could have tax consequences.

Look, we get it – market uncertainty can be unsettling, and you may feel as if you have to do something. But here are a few things to consider before shaking up your Marcus Invest portfolio. 

1. Marcus Invest portfolios are built with a long-term view in mind

The portfolio recommendations we provide are based on a number of criteria provided by you, such as time horizon – that is, how long you want to stay invested. And when we talk about time horizon, we’re thinking in terms of years, as opposed to say, days or hours. Generally speaking, a longer time horizon can give you more time to ride out the ups and downs of the market. This time factor is really important because it influences the strategic asset allocation for your portfolio. (Check out our article “New to Investing” to learn more about why your time horizon is a key factor when investing.)

Marcus Invest portfolios take the long view when it comes to investing. And that’s why we generally think it’s best for our investors who are not experiencing major life changes to stick to their investment strategy and stay invested even in times of volatility.

By resisting the urge to make any sudden portfolio changes out of market fear or panic, you may be in a better position to see your investments grow over the long run.

Read more: What Factors Does Marcus Invest Consider When Recommending a Portfolio?

2. Markets are unpredictable, but our portfolios are intended to handle market volatility

Markets can be volatile. There’s no getting around it. But that doesn’t mean we can’t do anything about it. 

Marcus Invest portfolios are designed with the day-to-day market ups and downs in mind. Our team crunches large volumes of data to optimize our portfolios to help balance your investment account’s risk and return. 

Keep in mind, too, that our portfolios are diversified to give you exposure to a range of industries and economies. While diversification can’t eliminate all risks, it can help manage those risks in a strategic way. 

Day-to-day swings may not calm your investing anxieties. But historically, markets have recovered from short-term drops. So, for many investors, simply waiting out periods of volatility can be a good strategy. 

This is important to remember: It’s extremely hard to predict market behavior and prices in the short run (no one has a crystal ball!). Markets are driven by a variety of factors. And while investors and traders might try their best, it’s hard to consistently be right in predicting the market. A strategy of trying to time market highs and lows – and to sell and buy at those times – can backfire. That’s why we suggest that clients stay the course and remain invested in a diversified portfolio even when there are bumps in the road. We believe, in the long run, markets reward patience.

3. Making certain portfolio changes or withdrawals can be costly

If the above doesn’t convince you to stay the course, the tax man might. That’s because making portfolio changes or withdrawals could have tax consequences. 

Be aware that changing your investment strategy or risk tolerance can result in changes to your asset allocations. And certain allocation changes might require us to sell some assets in order to update your portfolio.

For instance, in an individual investment account, certain asset sales – where you have realized gains (translation: profits from selling an asset for more than the original purchase price) – may trigger capital gains taxes. How much you may end up paying will depend on your investments and how long you’ve held them. 

If you’re an avid Marcus reader, you know we could go on and on about investments and taxes (we like this stuff). But we won’t do that in this article. You can read more about capital gains and Marcus Invest’s tax-smart portfolio management here. 

Investment taxes are a complicated subject, and it’s best to consult a professional tax advisor if you have any concerns. But the takeaway here is that making portfolio changes in your investment account could impact your tax bill at the end of the year. 

Now, what about retirement accounts? Tax considerations are also something to be mindful of here, especially when it comes to the timing of your withdrawals. If you withdraw money from an IRA before age 59 ½, you may be subject to a 10% early withdrawal penalty. 

Remember, the money in your IRA is for retirement and ideally, you don’t want to touch that until your golden years. 

Bottom line: Whether it’s an individual investment or retirement account, it’s important to think twice before making changes or withdrawals because even small changes could have tax consequences.