With the market gyrating of the past few weeks it may be time to rethink your current asset allocation. Depending on your age, you may want to shift some of your money out of stocks and into safer assets with less exposure to the stock market, or potentially use some of the gains you have racked up over the past 10 years or so to do home improvements, travel or whatever makes you happy. I have pulled together 4 things you can do with your money if you take it out of the stock market.
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Pay Down Debt
This is an obvious one, but oftentimes it is overlooked. If you have some unrealized gains in the stock market and still have debt, you can sell off some of your position, realize the gains and then use those gains to reduce your outstanding debt. Yes, you will have to pay taxes on the realized portion that you sell, but I’d rather pay taxes and have a profit than watch that gain deteriorate when the market starts to fall. Plus, using the gain to pay down some outstanding debt is a win-win situation.
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Move to CDs/Savings
One of the factors causing the market volatility over the past few weeks is the rise in interest rates. While the rise in interest rates is inversely correlated with the move in stocks, from a personal standpoint, the rise in rates may not be that bad. As interest rates go up, the rates you receive on deposits at financial institutions also increases.
Five years ago, it was extremely hard to find a savings account paying more than 0.5%, but today there are online savings accounts with rates above 2% (e.g. Marcus by Goldman Sachs). That 2% return is essentially risk free as the bank deposits are protected up to $250,000, so putting some money to work in a savings account could be a good way to protect some capital while still earning a return on your money.
Another option you can consider is opening up a Certificate Deposit (CD). CD’s typically offer higher interest rates than savings accounts, but require that you lock your capital up for a given time period (i.e. 1-year CD means that you can’t touch your capital for 1 year without incurring a penalty). If you don’t need immediate access to some cash, a CD could be a good option to diversify away from the stock market.
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Home Improvements
Taking money out of the stock market and using it for home improvements that increase the value of your home is another way to lock in some of your gains in the market while putting them to good use. There are some easy home improvements that can be done that will increase the value of your home by more than $5K.
For example, according to a survey conducted on Zillow, homes with black or dark grey doors typically sell for $6k more than homes with other color front doors. It may sound a bit dark, but painting your front door black is actually a sure way to increase your home value. If the black front door isn’t for you, you can do some landscaping projects or repave/finish your drive way to add some additional curb appeal to your home. All of these options will increase the value of your home with minimal work required.
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Have Some Fun
Reallocating capital doesn’t always have to mean moving it to a new asset class. If you have had some large gains over the last bull market, it doesn’t hurt to reward yourself a little and recognize some of those gains for a trip or vacation that you have been wanting to go on. If you can preserve your initial capital investment and just use some gains to pay for a vacation or needed get away that’s another win-win situation. You get to relax and enjoy yourself all while leaving your initial investment amount intact. You can then take that initial investment amount and move it into a CD, savings account or bond if you want to move some additional money out of the stock market.
Reallocating capital can mean a lot of different things for different people depending on your age, financial situation, investment strategy, etc. However, with the stock market coming off of all-time highs and volatility increasing, now is a good time to rethink your current allocation and decide if a strategy shift is right for you.
